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US companies issued $1.9 trillion in bonds through August, up 30%, as global AI-linked bond issuance surpassed $400 billion this year, raising questions about market impact.
US companies issued $1.9 trillion in bonds through August, a 30% increase from the same period last year, according to SIFMA, as tech giants increasingly turn to the bond market to fund AI-related costs. Global bond issuance by AI-linked companies has already surpassed $400 billion this year and is running at an annualized pace above $500 billion, according to a quarterly report from the Institute of International Finance (IIF). US companies accounted for roughly 90% of that total.
AI Borrowing and Market Absorption
While the scale of this year's borrowing binge has not yet proved to be a constraint on Big Tech, the bigger question is how capital markets will absorb their growing financing needs. This flood of new debt has raised a broader question for the bond market: could it crowd out other bond issuers, sending their prices lower and boosting yields?
Even Federal Reserve Chairman Kevin Warsh acknowledged earlier this month that hyperscaler competition for capital is already playing some role. Warsh said that the so-called hyperscalers are out in the market raising funding, adding that the competition for capital is real and partly explains the increase in yields.
But so far, researchers have found little evidence to suggest that bond market competition or any so-called crowding-out effect has occurred directly between US Treasurys and AI-linked bonds. Bonds funding the AI build-out are primarily longer-term, while Treasury issuance has shifted to shorter-dated maturities, limiting overlap.
Investor Groups and Yield Trends
Treasury buyers and hyperscaler bond buyers also tend to be separate investor groups, said Vishwas Patkar, Morgan Stanley's head of US credit strategy, during a Wednesday IIF briefing. The share of global bond issuance by nonfinancial corporations has also remained broadly stable, according to the IIF report.
An analysis reached a similar conclusion after finding no statistically significant increase in 10-year Treasury yields around the past six mega AI debt offerings. AI spending adds to capital demand from other investors at a time when the country's personal savings rate is hovering near low levels.
Patkar said he does not think it is about AI-driven corporate issuance as the big variable for rates. He added that it is more what the borrowing represents in terms of a dynamic that is boosting growth over the near-term and how that affects fundamentally where rates should be.
Outlook for Tech Financing Needs
The borrowing surge reflects the massive capital requirements of AI infrastructure, from data centers to advanced chips. As tech giants continue to invest heavily, their reliance on bond markets is expected to grow, but the ultimate impact on yields and other issuers remains uncertain.
Market participants will be watching closely for signs of crowding out, especially if Treasury issuance shifts or if savings rates change. For now, the evidence suggests that the AI debt wave is being absorbed without major disruption, but the debate over its long-term effects is far from over.
David Hollerith covers a range of developments throughout the financial sector, from Wall Street to banking and asset management to crypto and fintech.
AI Bond Issuance US Tech Giants Kevin Warsh Institute Of International Finance Morgan Stanley Bond Market SIFMA
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