Hedge fund Bridgewater indicated that, considering the risks stemming from increased government public spending and the inflationary impact of artificial intelligence, the firm is more bullish on stocks than on bonds.

Several Co-Chief Investment Officers (CIOs) at Bridgewater warned that increased sovereign bond sales by governments to fund "defense and infrastructure" could test the market's capacity to absorb the debt. "It depends on the willingness of buyers to hold the debt and what terms are needed to attract the next marginal buyer," wrote Bob Prince, Greg Jensen, and Karen Karniol-Tambour in a briefing. While there is no "magic number" that determines a sustainable level of debt or deficits, many developed economies are "dangerously close" to these limits. Less than a week ago, Japan's bond market suffered a sharp sell-off following Prime Minister Sanae Takaichi's push for fiscal stimulus. However, Japan is far from the only government globally using debt issuance to fund expansionary policies. Bridgewater is also concerned that inflation, currently dismissed as a threat by many investors, could begin to accelerate. The co-CIOs wrote that even if massive spending on AI ultimately proves to be disinflationary, it is currently adding to inflationary pressures in the short term, given the demand for resources like chips, electricity, and scientists. Prince, Jensen, and Karniol-Tambour argue that while favorable growth prospects benefit corporate profits, they also "carry the risk of triggering inflation, and the associated increase in bond issuance to meet financing needs could push yields higher." "With central banks having limited room to proactively cut rates, and with Europe and Japan still engaged in quantitative tightening (creating global spillover effects), we find the investment environment for bonds challenging and therefore prefer equities," they wrote.