US tech giants' AI borrowing could push up Europe's bond yields

Europe's bond markets face fresh pressure as US technology giants increasingly tap European investors to finance massive artificial intelligence (AI) infrastructure investments, potentially increasing borrowing costs for companies and governments, according to a report by Reuters.

While technology-related debt issuance in Europe remains significantly below US levels, investors expect borrowing to accelerate across euro, sterling and Swiss franc markets in the coming months.

Alphabet launched its second euro-denominated bond sale of the year on Monday, following a €9 billion ($10 billion) issue in May. Other major technology companies, including Meta, Amazon and Microsoft, are also expected to increase overseas borrowing to fund AI investments.


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Fidelity International's fixed-income chief investment officer Marion Le Morhedec estimates that €40 billion to €60 billion in technology-related debt issuance could be in the pipeline, the report stated.

Technology-related debt issuance in the United States has exceeded $250 billion so far this year, up 81% year-on-year. European issuance stood at $39.3 billion, an increase of around 5%, according to LSEG data cited by Reuters.

BNP Paribas expects net supply of euro-denominated investment-grade corporate bonds to rise 83% to €192 billion in 2027, compared with €105 billion this year. US companies issuing bonds in European markets, known as reverse Yankees, could account for €80 billion to €90 billion of next year's supply, with hyperscalers making up most of the total.

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Jumbo Bond Deals Could Test Investor Demand

The surge in borrowing could widen investment-grade credit spreads as technology giants compete with utilities, telecom companies and automakers for investor capital.

Asset swap spreads on the ICE BofA Euro Investment Grade index widened by 11 basis points last month, suggesting investors are demanding higher compensation to hold corporate bonds.

European companies are also increasingly favouring shorter-maturity debt amid concerns over rising long-term yields and heavier issuance. Vontobel portfolio manager Christian Hantel told Reuters that some issuers are shifting from traditional 10-year bonds to maturities of five to seven years.

AI Debt Issuance May Pressure Government Bonds

The additional corporate borrowing could also weigh on European government bond markets, which are already facing concerns over fiscal pressures and inflation.

European Central Bank President Christine Lagarde said last week that hyperscaler debt issuance had contributed to rising sovereign bond yields, Reuters reported.

As major technology companies offer investors highly rated bonds with yields typically above government securities, the growing supply could intensify competition for investor demand and push up borrowing costs across European markets.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)