JPMorgan Chase (JPM) CEO Jamie Dimon on Tuesday stepped up his warning about the risks of a global bond selloff, saying massive global competition for capital could begin to squeeze corporate borrowers.
Dimon warned that the combination of rising government borrowing costs and spending on the AI boom could spill over into corporate credit markets, increasing companies’ costs of refinancing or taking on new debt.
“There will be a point where the market will demand more and more, and yes, at some point that will flow through into corporate debt, corporate credit spreads, and things like that, as normally happens,” Dimon said in an interview with Bloomberg on the sidelines of a JPMorgan event in London.
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“The best thing to do with these things is to deal with them before they become a crisis. If it becomes a crisis, we will deal with it. It will just be in a much less pleasant way,” he added.
The warning comes as the global bond rout has pushed long-term borrowing costs sharply higher in recent weeks, with the benchmark 10-year U.S. Treasury yield recently surpassing highs not seen since 2002.
Learn more: How Surging Treasury Yields Could Affect Your Finances
These massive sales took place after the start of the war in Iran, which led to a significant increase in inflation. The strength of the US economy, amid pricing pressures, as well as the enormous new demand for capital driven by the AI boom, have exacerbated this dynamic.
Credit markets have already started to show signs of strain as interest rates have risen. In recent weeks, the spread to insure U.S. junk bonds has widened significantly in the credit default swap market, according to LSEG data compiled by Yardeni Research.
Dimon has been delivering versions of this argument for months. In JPMorgan’s April shareholder letter, he warned that the combination of spending on AI, defense and infrastructure, as well as large government deficits, were likely to keep upward pressure on borrowing costs.
Weeks ago he told Yahoo Financeshortly after the Federal Reserve raised rates in September, that while he believed borrowing costs could continue to rise, the relative strength of the labor market indicated that those costs had not yet translated into broader economic stress.
On Tuesday, Dimon focused on how these risks could impact businesses.
“For businesses, whether you have debt or not, when you have to (refinance) or borrow money, are you prepared for higher credit spreads or not?” he said.
David Hollerith covers a range of developments across the financial industry, from Wall Street to banking and asset management to crypto and fintech. Email him at david.hollerith@yahoofinance.com. Follow him on X at @DsHollers.
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