“The Paradox of the AI Investment Boom” ... Bond Market Faces Supply-Demand Pressure as Big Tech Corporate Bond Issuance Surges [fn Market Watch]

[Financial News] The expansion of global Big Tech companies’ investments in artificial intelligence (AI) is emerging as a new source of supply-demand pressure in bond markets. Analysts say the surge in corporate bond issuance to build AI data centers and related infrastructure could intensify competition between U.S. Treasuries and high-grade corporate bonds for long-term investment funds. With the burden of government bond issuance also growing in major economies, the possibility has been raised that increased corporate bond supply for AI investment could constrain declines in long-term interest rates.
According to a “2027 Bond Market Outlook” report released by Daishin Securities on the 25th, U.S. AI-related corporate bond issuance had already surpassed last year’s full-year total by July. In particular, long-term bonds with maturities of 10 years or more were estimated to account for nearly 50% of issuance.
Gong Dong-rak, a researcher at Daishin Securities, said, “Along with government bond issuance, the increase in bond supply driven by large-scale corporate bond issuance by Big Tech companies is also affecting interest rate trends.”
He noted that, as the credit rating of U.S. Treasuries has been downgraded to AA+, Big Tech companies with similar credit ratings are expanding bond issuance to fund AI investment. He said competition to secure investor funds could intensify now that the credit-rating gap between government bonds and high-grade corporate bonds has narrowed.
In particular, given the high proportion of long-term bonds among AI-related corporate bonds, their investor base may overlap with that for long-term U.S. Treasuries. If competition between government and high-grade corporate bonds to attract funds from long-term investors such as pension funds and insurers intensifies, it could also affect the yields investors demand.
The expansion of U.S. government bond supply is another source of pressure. Researcher Gong said, “The share of U.S. Treasuries held by foreign investors fell from 50.2% in 2013 to 32.4% in the second quarter of this year. Foreign investors’ holdings of Treasuries did increase, but the U.S. government’s issuance grew faster.”
The analysis is that sensitivity to Treasury yields could rise as the share of public-sector investors, such as central banks and sovereign wealth funds, declines while the share of private investors grows. The term premium—the additional compensation investors demand for holding long-term bonds—is also trending upward.
Researcher Gong explained, “The term premium, which has continued to rise since the pandemic, has recently been used in effect as an indicator of market participants’ perceptions of supply-demand conditions.”
The pressure from increased bond supply is also a factor to watch in the non-investment-grade corporate bond market. Daishin Securities said credit spreads in the U.S. credit market have rebounded, led by lower-rated bonds. However, it is difficult to conclude that the widening of non-investment-grade bond spreads is directly attributable to increased issuance of AI-related corporate bonds.
Taking these inflation and bond supply-demand pressures into account, Daishin Securities forecast that the benchmark interest rates in South Korea and the United States would peak at 3.50% and 4.50%, respectively, in the first quarter of 2027. It judged that even after the rate-hiking cycle ends, market interest rates could decline slowly because of high policy rates and pressure from bond supply.
Researcher Gong forecast, “Even after the rate peak is confirmed, elevated policy rates and supply-demand uncertainty will persist, slowing the downward stabilization of interest rates.” The analysis is that expanding AI investment is emerging as a factor affecting not only the stock market but also the bond market’s supply structure and long-term interest rates.


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