Aug 27, 2026 · 30 min · 11 segments
AI spending has become a major force in the U.S. economy, but the build-out is running into real-world constraints. Morgan Stanley Chief U.S. Economist…
Dustin ReidHostMichael GapenGuest
Prerna MathewsHost
Speaking of fixed income, Dustin, I, I think it's important we go there for a minute because, you know, we heard a lot on inflation from Michael, but we didn't hear a lot on productivity.
But your fixed income lens on this, I think is gonna be very helpful for our listeners.
One is obviously Middle East oil, geopolitics, energy complex in general, which has bounced around a little bit over the last six weeks.
The latest news here as we record on Wednesday, August twenty-sixth, is relatively constructive, i.e., energy prices lower, but that obviously can bounce around.
The second thing is, again, on the productivity side, to your point, certainly a lot of people, and we've had, uh, others on this program talking about kinda AI productivity in previous episodes, and certainly the productivity is kind of- Raring to go, but maybe not happening right away.
And I would say here we are, fast-forward a year or two, and I would say, you know, productivity gains are okay in the US, but they're certainly not probably at the levels that some people thought we might have seen by now already going back one or two years ago, looking at twenty twenty-six, mid twenty twenty-six.
So that inflationary push lower, deflationary push, as it were, you know, hasn't really come through, and you can see it in the data with the inflation data, obviously, when you look at, uh, PC data, which we just had this morning, or headline CPI or, you know, a bunch of super core, a bunch of different metrics.
And the third thing I would add is, in particular, over the last four to six weeks, we've seen a huge amount of issuance by corporates, by hyperscalers issuing corporate paper all across the curve, uh, and the back end of the curve, to be fair.
And that supply, that supply from corporates is clearly routing out space for regular old US Treasuries, sovereigns.
And, you know, s-if you have, simply put, more supply and the same demand, you're probably gonna see lower prices.
And when you-- in, in the fixed income space, when you see lower prices, you see higher yields.
But the productivity story I'm not particularly worried about yet as a driver for fixed income and the curve.
I think the bigger drivers here are what we've had the last, uh, certainly the last four to six weeks, but I would say the last really four to six months.
Increased issuance by corporates, particularly in the hyperscaler tech space, and that is gonna keep a little bit of a fight between sovereign and corporate bonds in terms of space on the shelf.
Just a thought for us to wrap up with as we're thinking about how we continue to invest in the AI growth story moving forward.
Speaking of fixed income, Dustin, I, I think it's important we go there for a minute because, you know, we heard a lot on inflation from Michael, but we didn't hear a lot on productivity.
But your fixed income lens on this, I think is gonna be very helpful for our listeners.
One is obviously Middle East oil, geopolitics, energy complex in general, which has bounced around a little bit over the last six weeks.
The latest news here as we record on Wednesday, August twenty-sixth, is relatively constructive, i.e., energy prices lower, but that obviously can bounce around.
The second thing is, again, on the productivity side, to your point, certainly a lot of people, and we've had, uh, others on this program talking about kinda AI productivity in previous episodes, and certainly the productivity is kind of- Raring to go, but maybe not happening right away.
And I would say here we are, fast-forward a year or two, and I would say, you know, productivity gains are okay in the US, but they're certainly not probably at the levels that some people thought we might have seen by now already going back one or two years ago, looking at twenty twenty-six, mid twenty twenty-six.
So that inflationary push lower, deflationary push, as it were, you know, hasn't really come through, and you can see it in the data with the inflation data, obviously, when you look at, uh, PC data, which we just had this morning, or headline CPI or, you know, a bunch of super core, a bunch of different metrics.
And the third thing I would add is, in particular, over the last four to six weeks, we've seen a huge amount of issuance by corporates, by hyperscalers issuing corporate paper all across the curve, uh, and the back end of the curve, to be fair.
And that supply, that supply from corporates is clearly routing out space for regular old US Treasuries, sovereigns.
And, you know, s-if you have, simply put, more supply and the same demand, you're probably gonna see lower prices.
And when you-- in, in the fixed income space, when you see lower prices, you see higher yields.
But the productivity story I'm not particularly worried about yet as a driver for fixed income and the curve.
I think the bigger drivers here are what we've had the last, uh, certainly the last four to six weeks, but I would say the last really four to six months.
Increased issuance by corporates, particularly in the hyperscaler tech space, and that is gonna keep a little bit of a fight between sovereign and corporate bonds in terms of space on the shelf.
Just a thought for us to wrap up with as we're thinking about how we continue to invest in the AI growth story moving forward.
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