AI Boom Runs on $1.5 Trillion of Hidden Debt, FT's Wigglesworth Warns

Hyperscalers issued close to $500 billion in bonds this year, up from a couple hundred billion last year, and roughly $1.5 trillion in lease commitments sit off the balance sheets of the companies building the AI boom. That is the core warning from Robin Wigglesworth, global finance correspondent for the Financial Times, in an interview with MarketWatch's Michael Sincere published Sept. 29 — the same day his new book, "A Fabulous Debt: The Epic Story of How Bonds Built the Modern World," was released by Portfolio/Penguin.

"Equity isn't what's inflating the AI boom. It's debt," Wigglesworth said.

The financial engineering worries him more than the raw issuance. Companies are structuring chip and electricity purchases as future leases rather than owned assets, so the liabilities stay off the balance sheet. Of the roughly $1.5 trillion in lease commitments, only about $500 billion appears on any balance sheet, he said. If the pattern persists for a few more years, he points to a specific precedent: Cisco Systems after 2000, whose stock took 25 years to regain its dot-com peak.

The capital expenditure behind AI is too large for free cash flow alone, which is why the biggest technology companies have turned to the bond market. Wigglesworth traces the historical rhyme to the 19th century, when Jay Cooke — the banker who sold the bonds that helped the North win the Civil War — backed transcontinental railways, misjudged the risk, and watched his firm collapse. A European financial crisis triggered a sell-off in American railway bonds, Jay Cooke and Co. went bankrupt, and the resulting panic set off what is now called the Long Depression, still the longest recession in American history, per the National Bureau of Economic Research.

What bonds are signaling that stocks are missing

The bond market is telling investors that inflation isn't returning to 2% anytime soon and central banks may need to keep rates higher for longer, Wigglesworth said. The world has broken with the low-yield, low-inflation environment of the 2000s and 2010s — and he considers that a good thing, because those low rates reflected malaise left over from the financial crisis. In his view, the equity market has not priced in the possibility that rates stay elevated.

The 10-year Treasury yield crossing 5% for the first time since 2023 matters less than people think, he said. It's an arbitrary level. What matters is whether the cost of borrowing outpaces economic growth. The U.S. now pays about 3.6% of GDP in debt servicing — interest only, not principal — and spends more on its debts than on defense. As yields rise, money gets pulled from defense, education, healthcare and infrastructure.

"The bond market is the greatest show on Earth, and the stock market is almost like a circus by comparison," Wigglesworth said. The 10-year Treasury sets the cost of money for the global economy, flowing into mortgages, car loans and credit cards. When the dot-com bubble burst, the S&P 500 lost almost 50% peak to trough but produced only a shallow recession. A bond-market break, as in 2008, is potentially cataclysmic, he said.

Vigilantes, Warsh and warning signs

The bond vigilantes are back, and for the first time they can bully the U.S., not just small countries dependent on external financing, according to Wigglesworth. He cited President Donald Trump backing down after "liberation day" in the face of bond-market pressure. The responsible move for the Federal Reserve, he argued, is to raise rates and prove its inflation credibility, because the government sells bonds maturing in five to 30 years and their cost depends on how credible the Fed looks. He tied this to the hawkish shift from Fed Chair Kevin Warsh at Jackson Hole. The Fed raised rates a quarter point on Sept. 16, MarketWatch's editor noted, matching the move Wigglesworth called responsible.

Investors should watch two signals, he said: the 10-year Treasury yield gapping meaningfully above 5% rather than drifting, which would show fading faith in Washington's debt control, and stress in junk bonds — with the caveat that so much former junk issuance has migrated to private credit that the signal may be muffled now.

For portfolios, Wigglesworth sees bonds as more attractive than when 10-year Treasurys yielded 1% to 2%, though the answer depends on the horizon: equities for a 60-year runway, no junk or emerging-market debt for those retiring within five years. He isn't bracing for an imminent crisis, but he flagged that every major government is running large deficits simultaneously. His closing frame: if the U.S. has a financial sneeze, the rest of the world doesn't get a cold — it gets a full-on lung infection.