U.S. Debt Volatility Spikes as AI Debt Booms and Fed Navigates Fiscal Fog

The U.S. Debt Volatility Index hit a one-month high in early November, underscoring persistent market anxiety despite the resolution of the government shutdown. While lawmakers reached a compromise to fund federal operations, investors remained wary of broader fiscal risks, including a debt-driven boom in AI infrastructure and weak economic signals that could delay Federal Reserve rate cuts.

Gold and silver prices surged amid the uncertainty, with analysts pointing to a fragile fiscal outlook as a key driver.

The government shutdown, which lasted over a month, disrupted critical economic data releases, leaving policymakers and markets in the dark about the true state of the economy. The U.S. Labor Department has been urged to prioritize November employment and inflation reports to provide clarity for the Fed's December meeting. With the September jobs data being the last published before the shutdown, economists warn of gaps in understanding labor market trends, which could complicate the Fed's decision-making.

Meanwhile, the AI boom is fueling a rapid rise in data center debt, which has spiked 112% year-over-year to $25 billion in 2025. The surge is driven by hyperscale projects requiring advanced GPUs and cloud infrastructure, with tech giants like Meta, Oracle, and Alphabet issuing $75 billion in bonds and loans since September alone. Morgan Stanley projects AI-related data center spending to reach $2.9 trillion from 2025 to 2028, with half requiring external financing. However, the debt expansion raises concerns about overleveraging, particularly as AI hardware depreciates quickly and speculative builds lack guaranteed tenants. The median debt-to-EBITDA ratio for U.S. data center operators has climbed to 5.3x, up from 3.7x in 2023.

The Fed's policy path remains clouded by mixed signals. Weak private-sector job losses reported in October 2025 pushed expectations for a December rate cut to 68%, up from 62% before the data release. The dollar dipped as markets priced in easier monetary policy, with the EUR/USD and GBP/USD pairs rising. However, New York Fed President John Williams signaled that the central bank would soon begin purchasing assets to maintain ample reserves after ending quantitative tightening, a move that could influence longer-term interest rates.

Gold prices climbed 2% to $4,079.78 an ounce, while silver surged nearly 3%, as investors sought safe-haven assets amid fiscal and geopolitical risks. Ole Hansen of Saxo Bank noted that rising bond yields reflected "fiscal unease" rather than inflationary pressures, a trend supporting precious metals. The Bank of Canada's recent rate cut to 2.25%-despite internal debates over timing-also highlighted global central banks' cautious approach to tightening, with officials balancing inflation control against economic fragility.

Looking ahead, markets are split on the durability of the dollar and the Fed's next steps. While a government reopening will restore data flows, the delayed October jobs and inflation reports may hinder precise policy calibration. Analysts warn that a debt-fueled AI infrastructure race, combined with fragile fiscal fundamentals, could prolong volatility. For now, the Debt Volatility Index's climb reflects a market grappling with uncertainty-a stark reminder that the end of the shutdown did little to quell broader concerns about the U.S. debt trajectory and economic resilience.

---