The cyclical STOXX 600 lost more than 1% during the session, versus a 0.22% retreat in the tech-heavy S&P 500. On the bond front, the closely watched $39bn US 10-year auction drew strong demand at 5.30%, helping yields retreat from their highs. But the relief remained short-lived: the 10-year yield is pushing higher again this morning, ahead of a $22bn 30-year auction that will show whether appetite extends to the longest maturities.

The latest FOMC minutes struck a hawkish tone yesterday. All officials backed the decision to hike rates, and most judged that another rate hike would likely be appropriate before year-end. Several believed that rates were still doing little to restrain the economy, while strong demand and persistent inflation justified further tightening.

As expected, the message is that September’s hike may not be the last, but the latest PCE inflation and jobs data help soften that message, buying time before the Federal Reserve’s (Fed) next move.

Regardless, the hawkish tone of the Fed minutes gave a fresh boost to the US dollar, pushing the EURUSD below the 1.12 mark for the second time over the past week. The pair has recovered to the 1.12 mark this morning, but appetite is weak as European debt issues become a growing headache, with a contagion risk that cannot be ruled out.

The French-German yield spread spiked again to nearly 140bp after a few days’ respite, and I am starting to hear more bond investors tilting towards short positions in peripheral bonds against German Bunds.

It’s funny because, right now, we can no longer talk about core and peripheral countries in Europe. We talk about Germany and the peripherals. But the situation in Germany is not rosy either. Germany has its own issues, too. It is ramping up defence and infrastructure spending.

Now, some of this spending is financed through special funds outside the regular federal budget, benefiting from exemptions from the usual borrowing limits. But the debt still counts: off-budget doesn’t mean off the government’s balance sheet. Germany’s debt-to-GDP ratio is rising and is expected to rise further in the coming years as that borrowing feeds through.

As such, yes, Germany’s lower debt burden and reputation for fiscal discipline make it a less bad option for European bond investors, but I am not sure it is a good option for foreign investors more broadly.

From a growth perspective, the skies look cloudier in Germany: energy pressures hit its industrial economy harder than more service-oriented peers, while international competition challenges the industries that once made Germany an export champion.

Carmakers are a prime example: slow to embrace the electric-vehicle shift, they now face fierce competition, particularly from China. Slapping on tariffs will only buy time. It won’t save the industry.

So, my opinion is that fiscal spending may offer some support to growth, but it will not, on its own, restore Germany’s industrial competitiveness or prevent its debt-to-GDP ratio from rising. A few years from now, German debt may no longer be what it used to be.

This means that alternatives to the US debt are increasingly limited in the longer run, even though the US has its own debt issues, too. Here, long-term inflation expectations remain surprisingly anchored — suggesting that investors still have confidence in the Fed’s ability to contain inflation! — but rising US government debt and corporate borrowing to finance the massive AI buildout are increasing competition for investors’ money.

And AI borrowing is nowhere near slowing. Earlier this month, reports suggested Broadcom would backstop $42bn of a $60bn AI-chip financing package. And yesterday, we learned that SpaceX is looking for another $40bn to buy Nvidia chips — $30bn of it in investment-grade debt! Investment-grade debt…

Apparently, the $86bn raised in its IPO in June was not enough. I mean, these are extraordinary sums, and yet there always seems to be another financing round around the corner. There is simply no end to the appetite.

And all that borrowing could keep pressure on long-term government bond yields as governments increasingly compete with tech companies offering investors an extra yield to finance the next chapter of the AI race.

Of course, these deals do not mechanically push Treasury yields higher — the financing structure, timing and appetite from investors all matter. But they could help keep borrowing costs elevated for years to come.

So, if appetite for Western bonds weakens, Japanese investors could repatriate funds, pulling ample Japanese liquidity from under the feet of global markets. So far, ample liquidity elsewhere has suggested that other buyers could fill a potential Japanese gap, so I wouldn’t be too worried.

But in the West, scalable, low-risk options seem to be running low. Could gold attract some of that money? That remains to be seen. Higher yields are pressuring the yellow metal lower, as the opportunity cost of holding the non-interest-bearing metal is spooking investors right now, forcing them to cut exposure in the short run.

As we move into the next earnings season, and as more of the buildout relies on debt, the question becomes sharper: will revenues arrive quickly enough to pay the interest bill?

It’s clear that higher yields have not slowed the AI spending spree, but they make the eventual payoff increasingly important. As such, earnings will remain key in determining whether the tech rally has more room to run. Any disappointment — and/or a sharp downward correction in tech valuations — could be catastrophic for broader risk markets. God Save AI.