FILE PHOTO: A trader works as a screen displays the trading information for BlackRock on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2022. REUTERS/Brendan McDermid/File Photo
NEW YORK, Dec 2 (Reuters) - The BlackRock Investment Institute said on Tuesday it is turning bearish on long-term U.S. Treasuries, warning a coming wave of AI-related financing could put upward pressure on U.S. borrowing costs and exacerbate worries over U.S. government indebtedness.
In recent weeks, investors have been zeroing in on how big tech’s push into AI will likely mean hundreds of billions in new debt over the coming years. The added leverage is not expected to seriously dent the sector’s still strong balance sheets, but the borrowing spree is unfolding against a backdrop of already elevated public debt in the U.S. and other developed markets, stoking broader concerns about rising leverage across the financial system.
"Higher borrowing across public and private sectors is likely to keep upward pressure on interest rates," BII, a division of U.S.-based BlackRock focused on investment research, said in a 2026 global investment outlook report.
It said it turned "underweight" on long-term Treasuries for the next six to 12 months from a previous "neutral" view.
"A structurally higher cost of capital raises the cost of AI-related investment and affects the broader economy," it said. "A more leveraged system also creates vulnerabilities to shocks such as bond yield spikes tied to fiscal concerns or policy tensions between managing inflation and debt servicing costs." U.S. national debt is at a record high of over $38 trillion.
The institute's investment outlooks are based on views from senior portfolio managers and investment executives at BlackRock, the world's largest asset manager.
While an AI-driven productivity boom could eventually support government revenue and therefore ease the U.S. debt burden, such a process will take time, it said.
BlackRock remains optimistic that AI-related investments will continue to propel U.S. equities higher next year, said the institute. But while it expects AI-driven revenue gains to lift the economy broadly, it also anticipates that technological advances will benefit some companies more than others.
"Entirely new AI-created revenue streams are likely to develop. How those revenues are shared is likely to evolve – and we don’t yet know how. Finding winners will be an active investment story," it said.
Outside of the U.S., BlackRock turned more underweight for the next six-to-12-month period on Japanese government bonds due to the prospect of higher interest rates and heavier bond issuance.
On the other hand, it changed to an "overweight" view on emerging-market hard-currency debt from a previous "underweight" view, due to limited issuance and healthy government balance sheets.
(Reporting by Davide Barbuscia; Editing by Stephen Coates)
