Increasing bonds issuance by U.S. tech giants to build AI infrastructure is somehow reducing the attractiveness of Treasury securities to investors, who are seeking low-risk assets that can offer higher yields, according to experts.
According to data released by Bloomberg, by mid-August the U.S. issued 145.2 billion dollars in the month in investment grade corporate bonds, reaching a record high.
Long dated bond sales by tech giants including Alphabet, Google's parent company, to finance AI infrastructure have been a major driver of the new debt.
Since the beginning of this year, eight large bond offerings worth 25 billion U.S. dollars or more have come from the tech sector.
"We are seeing many tech giants, particularly those in the United States, keep issuing bonds. Their bonds are competing with U.S. Treasury securities, a trend that is likely to last into the next few years. Because these companies need money to invest in building data centers and other related infrastructure, they turn to bond issuance for funding. Bonds issued by these tech giants are very safe. It makes little difference in terms of risk exposure whether you buy Treasuries securities or these corporate bonds, yet the corporate bonds deliver extra interest income to investors. That is why they have become strong competitors to Treasury securities," said Samuel Tse, senior economist and strategist for Hong Kong fixed income research of DBS Bank.
"In the current round, we have seen an aggressive bond issuance, with long-term and high-priced bonds issuance intended to raise funds in the short term for building computing power (centers). Therefore, my judgment is that even if there is a Federal Reserve rate-cutting cycle in the future, the room for long-term decline of interest rates will also be partially offset by such supply pressure. So, I think in a short term, the term premium will most likely to rise easily rather than falls sluggishly," said Wang Hsin-Chieh, head of investment strategy at the Standard Chartered Bank.
On Wednesday, the total debt of the U.S. federal government once again hit a historic high, surpassing 40 trillion U.S. dollars.
Data from the Reuters and Bloomberg show that, as U.S. debt approaches the 40 trillion-dollar mark, long-term Treasury yields have fluctuated upward, prompting large-scale and frequent shifts in cross-border capital flows and further widening the divergence between financial markets in developed economies and emerging markets.
Disorderly debt expansion also distorts bond market structures, weakens liquidity, and heightens global systemic risks. The U.S. Treasury market, once a cornerstone of global financial stability, is now experiencing supply-demand imbalances.
Increasing AI bonds from U.S. tech giants dampen appeal of Treasury securities: experts
