Treasuries Gain From AI Uncertainty

Small, plausible increases in long‑run productivity from AI sharply raise the present value of government debt and can materially lower Treasury yields; importantly, because tax revenue scales slightly faster than GDP, the debt value is convex in growth, so mean‑preserving uncertainty about AI’s long‑run effect increases bond valuations even without raising expected growth. The paper cited quantifies this: 0.1 percentage point extra growth ≈ $1.3 trillion in debt value, and ±0.5pp of mean‑preserving growth uncertainty adds roughly $0.7 trillion of ‘convexity’ value. — This reframes sovereign debt not just as a fiscal accounting problem but as a contingent claim on technological progress and uncertainty, with implications for fiscal policy, bond markets, and how governments should judge AI bets.