Artificial intelligence is no longer just a technology or stock market story. Its rapid expansion is beginning to influence investment, economic growth, government finances and, potentially, the global bond market.
Global AI investment is expected to cross $1 trillion in 2026, according to Allianz Research, with the US accounting for more than $500 billion. AI investment is equivalent to about 1.8% of US GDP and 0.9% of global GDP. Tech and data centre activity could account for between 36% and 50% of US year on year growth this year.
The scale of this investment means AI is increasingly becoming a macroeconomic force. Allianz Research examined how the AI supercycle could affect interest rates through five channels: productivity and the neutral rate, inflation expectations, government finances, AI related debt issuance and crowding out in financial markets.
The findings point to an unusual path for interest rates. In its upside scenario, Allianz estimates that AI could eventually reduce the impact on 10 year government bond yields by around 50 basis points over a 10 year period in both the US and eurozone. But rates may first move significantly higher before falling. The report estimates a 135 basis point round trip for the US 10 year yield, compared with 80 basis points for the eurozone.
Why could rates eventually fall?
The answer lies in productivity and government finances. If AI delivers sustained productivity gains, economic output and tax revenues could increase. That would improve what Allianz calls fiscal collateral, essentially the ability of governments to support their debt through future primary surpluses.
For the US, this fiscal channel could eventually reduce the 10 year yield by 85 basis points in the upside scenario. The effect is important because the US is also expected to see its debt to GDP ratio rise over the coming decade.
But AI could create pressure before delivering that fiscal benefit. AI companies are raising huge amounts of capital, including through long dated debt. Allianz estimates that duration supply and crowding out could together add 34 basis points to the US 10 year yield at their peak. These effects mainly operate at the longer end of the bond curve.
The bigger message is that AI could change how investors think about interest rates. The technology is increasingly connected not just to chipmakers, cloud companies and data centres, but also to government debt, inflation, fiscal sustainability and the price of money. As Allianz puts it, the fiscal channel ultimately decides where rates end up.
