They have different kinds of risk, but do AI investments and bonds compete for investors?

neilwilson a day ago | parent | next [-]

Only in the secondary market. In the primary market they require different types of money for settlement.

If you buy an AI issue, then the AI company has the bank deposit and the bank still has the matching reserves needed to buy government bonds in the primary market. All that changes is the ownership tag on the bank deposit.

	▲	nostrademons a day ago \| parent \| next [-]
		"Money flows through markets, not into markets." That said, there is a meaningful difference in terms of who has control of the money, and what they choose to do with it. Bank reserves are a red-herring; before the investor chose to buy either AI or government bonds with it, it was sitting in a bank deposit where the bank had parked it in short-term Treasuries. But prices are set on the margin (because again, money flows through markets, not into them), and so it is the act of that investor choosing to buy AI company bonds rather than government bonds that sets the relevant interest rates of both. A related confusion is that the bank reserves are parked in short-term T-bills, whose interest rate is largely controlled by the Fed, while the investments we're talking about are AI corporate bonds vs. long-term government bonds. These are three different asset classes that trade on three different markets with three different interest rates.
	▲	skybrian a day ago \| parent \| prev [-]
		But looking one step back, the investor might need to sell something else to raise cash to buy the stock? I suppose in that respect, all investments compete.

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huurtehoog a day ago | parent | prev | next [-]

Yes there's only so much credit on offer and the rising yields precisely when corporate debt is skyrocketing to finance massive data center expansion would indicate that that is indeed a factor.

Op-eds claiming the opposite because "trust me bro" would also make me inclined towards the "data center build out for AI factors in for rising yields in sovereign debt"

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pydry a day ago | parent | prev [-]

iirc data center construction investments are largely bond funded so this will absolutely fuck them.

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fbd_0100 a day ago | parent [-]

you may have the causality reversed. perhaps treasury yields are rising because bond investors would rather fund data center build out than buy 10yr notes

	▲	pydry a day ago \| parent [-]
		no. treasuries establish the interest rate floor. data center bonds require a risk premium on top of that.