- In today’s CEO Daily: Can the U.S. grow its way out of its fiscal burden?
- The big leadership story: Walmart will use its $3 billion tariff refund to lower prices
- The markets: Trending positive heading into the U.S. market open
- Plus: All the news and watercooler chat from Fortune.
Good morning. The era of cheap money is officially over. The bond market, not the Fed,
is giving the clearest signal to CEOs that their borrowing costs are going up. U.S. Treasury Secretary Scott Bessent’s
$4 billion buyback plan for longer-dated government debt managed to calm bond markets for barely a day before we saw another sell-off, pushing up the yield on the 30-year Treasury. With the U.S. national debt now
topping $40 trillion, few seem to share Bessent’s view that
“we can grow our way” out of the fiscal burden.
To some extent, skittish bond markets are another example of growing risks—and costs—in the U.S. economy. It’s even more likely that
the Fed will raise interest rates when it meets again in September. Higher yields mean Washington is now
paying close to $3.2 billion a day in interest on the debt. It raises the mortgage rates that are weighing on consumers and builders like KB Home, which CEO
Rob McGibney recently spoke about in this column.
Other implications to think about? First, the Trump Administration’s fiscal policy. Lower taxes and regulatory burdens have certainly helped to fuel corporate spending, with the Treasury department reporting that business investment
rose nearly 10% in the first half of the year. But there are trade-offs to every decision. The evaporating tariff windfall
was a $200 billion hit to this year’s budget. Add in an atmosphere of overall uncertainty, America’s record level of debt and
deep concern over this administration’s commitment to ethics and rule of law. They point to higher borrowing costs in the longer term and other sources of friction for leaders.
And then there’s AI spending. Companies like Alphabet, Amazon, Meta, Microsoft and Oracle are issuing record amounts of debt to fund AI infrastructure. There’s been about
$500 billion in AI-related debt issuance so far this year, according to Goldman Sachs. Alphabet raised almost $32 billion in debt in 24 hours in February, including a
100-year bond. As with the equity markets, the gap between the hyperscalers and the rest of corporate America is widening. Yes, investors are starting to distinguish between the platforms and the infrastructure around them, between proven cash flows and promises that have yet to materialize. But they’re gravitating to the same haves and have-nots of the equity markets, which means tech giants are likely to continue driving up costs and tightening credit for other companies—especially in the current climate.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com