U.S. debt is the most expensive since 2007, and bankruptcies hit a 16-year high. Who is behind the scenes?
On July 18, the U.S. Department of the Treasury conducted a very bad auction. The 30-year Treasury bond auctioned had a yield as high as 5.06%, the most expensive auction since 2007. At the beginning of 2022, the interest rate for Treasury bonds of the same maturity was only about 2.00%. This shows that in four years, the price of long-term federal borrowing in the United States has increased by two and a half times, and the debt servicing costs that need to be paid are getting higher and higher. Immediately afterwards, according to the latest data released by S&P Global Markets on July 20, in the first six months of 2026, 372 large companies in the United States filed for bankruptcy, setting a record for the first half of the year since 2010, that is, in 16 years, and even exceeding the total of 317 companies in the whole of 2022. Less mentioned are small businesses - 1,663 went bankrupt during the same period, a year-on-year increase of about 50%. This shows that borrowing money is as expensive as it has been in nineteen years, and bankruptcy is as expensive as it has been in sixteen years. Here comes the question: Who is the driving force behind this? BWC Chinese website’s financial research team analyzed that what connects the two ends is a severely underestimated AI force that is “competing for water” with the US federal government. First look at this well. Suddenly there is a big water pumper. In the past, giants such as Microsoft and Google were "cash cows" in the capital market: they relied on surging cash flow to invest and repurchase shares every year. They were the suppliers of funds. But this round of AI arms race has completely rewritten this balance sheet. According to the latest estimates from Morgan Stanley, global AI-related debt issuance will reach nearly US$570 billion in 2026; as of May 31, it has reached approximately US$236 billion, approximately four times that of the same period last year. The combined capital expenditures of Alphabet, Amazon, Microsoft, and Meta are expected to exceed US$700 billion this year. The Bank for International Settlements (BIS) also pointed out this change: the scale of AI investment has become so large that even the world's richest technology companies cannot cover it with their own cash flow and can only turn to debt. The largest “supplier” in the past has become the thirstiest pumper overnight. What the BWC Chinese website financial research team would like to emphasize is that the transfer of this identity carries far more weight than the literal meaning. The giants' piles of cash over the past two decades have themselves been a force driving down global interest rates - they've poured money back into the market, bought bonds and bought back stocks. But now, not only are they no longer supplying water, but they are also asking for money from the market, taking away more than 500 billion US dollars a year. When the largest net saver in the capital market turns into the largest net borrower, the entire interest rate will inevitably move up a notch. And there is only one well. Whether it’s the U.S. Treasury Department trying to finance an estimated $39 trillion in debt rollovers—$743 billion in Treasury bonds were auctioned in one week in July alone—or technology giants trying to raise money for data centers and chips, they’re scooping up the same pool of long-term capital. The huge supply of government bonds has collided with the four-fold increase in AI bonds. There is only one result: the prices of long-term funds are raised together. What’s even more troublesome is that as more people pump water, the water in the wells continues to decrease. According to TIC data from the U.S. Treasury Department, Japan, the largest overseas holder, reduced its holdings by US$66.8 billion in a single month in May, and there was an overall net outflow of foreign official capital that month. These global central bank-level buyers are precisely the most stable and least price-conscious in the past few decades. On the one hand, the number of people collecting water has doubled, and on the other hand, the people providing water supply have withdrawn. It is strange that long-term interest rates have not increased. So, who died of thirst? The answer is the companies at the farthest reaches of the chain with the weakest bargaining power. The Ministry of Finance can borrow money no matter how expensive it is, and technology giants with good credit can still issue debt; however, the debts of small and medium-sized enterprises must be repriced at new and higher interest rates as soon as they mature, and their cash flow cannot support this new price. This process is often silent: a company will not collapse immediately because interest rates rise. It is at the moment when the debt matures and must be extended that it discovers that the interest on the same amount of money has more than doubled; but its sales price, orders and cash flow have not doubled accordingly. The interest rate is not a cutting knife, but a slowly tightening rope - which company's neck the rope is tied first depends only on whose debt matures first.
The ranking of bankrupt industries explains everything: Industry leads the list with 50 cases - this is precisely the category that relies most on heavy assets, is most in need of long-term financing, and is most sensitive to long-term interest rates; followed by 35 cases of discretionary consumption and 26 cases of medical care. The tragic 50% increase in the number of 1,663 small businesses is even more glaring: they do not even have access to the capital market and can only passively bear the raised water level. The people at the top are pumping water, but the people at the bottom are dying of thirst. This scene happened once more than 20 years ago. During the Internet bubble in the United States around 2000, telecom giants also believed in "endless demand" and issued large amounts of debt and frantically laid fiber optics. As a result, the bubble burst and demand was slow to come, but the debt was retained. WorldCom went bankrupt in 2002, setting the largest bankruptcy case in U.S. history at that time. Today's AI infrastructure is very similar to the optical fiber of yesteryear: both are using debt to gamble on a demand curve that has not been realized. The only difference is that this time the borrower is the most creditworthy company in the world; the same thing is that debt is rigid, but demand is not. In fact, the bond market has already begun to revolt: the subscription coverage of ultra-large-scale manufacturer bonds has declined, and credit spreads in the technology sector have widened in the first quarter. The title of Forbes is straightforward - "As AI debt approaches $570 billion, bond investors begin to push back." However, a bucket of cold water must be poured here. A fact that seriously conflicts with intuition is that although bankruptcies hit a 16-year high, the credit market was almost indifferent - by the end of June, the spread of the five-year North American high-yield CDX index narrowed to about 304 basis points, and a large amount of private credit was rushing towards these "wrecks" with check books. Markets are not pricing in a credit crisis. The optimistic explanation is: this round of liquidation is decentralized and structural, mainly eliminating already highly leveraged companies, and private credit has sufficient ammunition to catch it. However, the BWC Chinese website financial research team prefers another reading: the deviation between bankruptcy figures and credit spreads is itself the most alarming signal. When the most vulnerable companies have collapsed in droves, but the market is still priced according to the "quiet years", the risk has not disappeared, but has been postponed - S&P Global also predicts that there will be significantly more restructurings in the second half of the year. Therefore, the "driving force behind the scenes" actually has two hands. One is AI, a straw that is getting thicker and thicker, raising the level of long-term interest rates; the other is the government itself, which is carrying a debt of 39 trillion and must pay the highest price since 2007 for borrowing money. The Fed is caught in the middle: the six-month annualized rate of core PCE has soared to 4.1%, but once it really tightens, both the upper and lower ends will be ignited at the same time. So the most likely path is still the old path of least resistance - tolerate inflation higher than interest rates, slowly dilute the debt with currency depreciation, and let everyone who holds U.S. dollar assets jointly pay the bill. This also explains why global central banks are increasing their gold holdings at a record rate - according to the latest data released by the World Gold Council, global central banks will net purchase 863 tons in 2025, which is still nearly twice the annual average of 473 tons from 2010 to 2021. At the same time, the total amount of gold held by global central banks now exceeds that of US Treasuries for the first time since 1996, becoming the largest component of global reserve shares... Meanwhile, a record 45% of central banks still plan to buy more in the next 12 months. Not only that, but starting last year, the Bank of France sold 129 tons of gold it previously held in New York and replaced it with new, higher-quality gold bars stored in Paris. This suggests that countries are now beginning to rethink not just the amount of gold they hold, but also where and how it stores it. When an economy relies on inflation to absorb even the cost of borrowing money, whether the IOUs it issues are still considered "risk-free assets" becomes a question that needs to be answered again. Next, we should keep an eye on four numbers: whether the 30-year yield can still maintain 5%, whether restructuring will occur in batches in the second half of the year, whether the AI bond subscription coverage rate will continue to decline, and the speed and scale of gold purchases by global central banks. If any one of them fails, this machine with smoke at both ends in the United States will be one step closer to a real fire alarm. (End) Note: This article is the analysis and opinion of BWC Chinese website’s financial research team and does not constitute investment advice.
The ranking of bankrupt industries explains everything: Industry leads the list with 50 cases - this is precisely the category that relies most on heavy assets, is most in need of long-term financing, and is most sensitive to long-term interest rates; followed by 35 cases of discretionary consumption and 26 cases of medical care. The tragic 50% increase in the number of 1,663 small businesses is even more glaring: they do not even have access to the capital market and can only passively bear the raised water level. The people at the top are pumping water, but the people at the bottom are dying of thirst. This scene happened once more than 20 years ago. During the Internet bubble in the United States around 2000, telecom giants also believed in "endless demand" and issued large amounts of debt and frantically laid fiber optics. As a result, the bubble burst and demand was slow to come, but the debt was retained. WorldCom went bankrupt in 2002, setting the largest bankruptcy case in U.S. history at that time. Today's AI infrastructure is very similar to the optical fiber of yesteryear: both are using debt to gamble on a demand curve that has not been realized. The only difference is that this time the borrower is the most creditworthy company in the world; the same thing is that debt is rigid, but demand is not. In fact, the bond market has already begun to revolt: the subscription coverage of ultra-large-scale manufacturer bonds has declined, and credit spreads in the technology sector have widened in the first quarter. The title of Forbes is straightforward - "As AI debt approaches $570 billion, bond investors begin to push back." However, a bucket of cold water must be poured here. A fact that seriously conflicts with intuition is that although bankruptcies hit a 16-year high, the credit market was almost indifferent - by the end of June, the spread of the five-year North American high-yield CDX index narrowed to about 304 basis points, and a large amount of private credit was rushing towards these "wrecks" with check books. Markets are not pricing in a credit crisis. The optimistic explanation is: this round of liquidation is decentralized and structural, mainly eliminating already highly leveraged companies, and private credit has sufficient ammunition to catch it. However, the BWC Chinese website financial research team prefers another reading: the deviation between bankruptcy figures and credit spreads is itself the most alarming signal. When the most vulnerable companies have collapsed in droves, but the market is still priced according to the "quiet years", the risk has not disappeared, but has been postponed - S&P Global also predicts that there will be significantly more restructurings in the second half of the year. Therefore, the "driving force behind the scenes" actually has two hands. One is AI, a straw that is getting thicker and thicker, raising the level of long-term interest rates; the other is the government itself, which is carrying a debt of 39 trillion and must pay the highest price since 2007 for borrowing money. The Fed is caught in the middle: the six-month annualized rate of core PCE has soared to 4.1%, but once it really tightens, both the upper and lower ends will be ignited at the same time. So the most likely path is still the old path of least resistance - tolerate inflation higher than interest rates, slowly dilute the debt with currency depreciation, and let everyone who holds U.S. dollar assets jointly pay the bill. This also explains why global central banks are increasing their gold holdings at a record rate - according to the latest data released by the World Gold Council, global central banks will net purchase 863 tons in 2025, which is still nearly twice the annual average of 473 tons from 2010 to 2021. At the same time, the total amount of gold held by global central banks now exceeds that of US Treasuries for the first time since 1996, becoming the largest component of global reserve shares... Meanwhile, a record 45% of central banks still plan to buy more in the next 12 months. Not only that, but starting last year, the Bank of France sold 129 tons of gold it previously held in New York and replaced it with new, higher-quality gold bars stored in Paris. This suggests that countries are now beginning to rethink not just the amount of gold they hold, but also where and how it stores it. When an economy relies on inflation to absorb even the cost of borrowing money, whether the IOUs it issues are still considered "risk-free assets" becomes a question that needs to be answered again. Next, we should keep an eye on four numbers: whether the 30-year yield can still maintain 5%, whether restructuring will occur in batches in the second half of the year, whether the AI bond subscription coverage rate will continue to decline, and the speed and scale of gold purchases by global central banks. If any one of them fails, this machine with smoke at both ends in the United States will be one step closer to a real fire alarm. (End) Note: This article is the analysis and opinion of BWC Chinese website’s financial research team and does not constitute investment advice.