The two most striking market moves this year are the extent of the rise in bond yields and the strength of the equity rally. The biggest puzzle is why higher yields have not destabilized the stock market. Bulls attribute both to the remarkable surge in corporate profits.

Higher yields are viewed as a reflection of higher expectations for long-run growth driven by the AI investment boom. If earnings remain above historical norms, equities are therefore inexpensive. However, this narrative fails three tests.

It does not account for the strain already visible in credit funding the AI boom. It does not explain the revival in "debasement" trades betting on assets benefiting from a weakening dollar. By overlooking how spending has been paid for, it grants permanence to an arrangement that is anything but.

Real yields follow growth, but are driven by the private sector's desire to borrow. There are three ways to pay for a data centre: spend cash, lend credibility, or borrow. This boom has done all three.

The four biggest spenders—Microsoft, Alphabet, Amazon, and Meta—accumulated $200bn in spare cash by 2020 and now generate $650bn a year from operations. Being able to finance investment through balance sheets rather than credit allows the economy to enjoy spending benefits without upward pressure on interest rates. Even now, despite individual bumper bond deals, tech issuance remains dwarfed by government borrowing.

But the price sensitivity of this borrowing drives up yields for everyone else. Until concerns about overcapacity and margins arise, the debate is likely to continue.