Bond markets are signaling that interest rates are headed higher, which is bad news for stocks and the AI spending boom that has been carrying the US economy.

• For the first time in four years, short-term government bond yields are above the Fed's rate, which is the market's way of telling the Fed to raise rates, not cut them.
• If the Fed cuts rates while oil prices and inflation are rising, the dollar falls, inflation gets worse, and foreign investors dump US bonds, pushing yields even higher.
• If the Fed raises rates instead, stocks drop because companies have to pay more to borrow.
• The AI buildout has been driving nearly all US economic growth, and higher borrowing costs threaten the paper profits and circular spending propping it up.

Outlook: Either way yields look set to rise, putting pressure on the AI trade just as the biggest IPOs of the year come to market.