US tech giants are turning to European bond markets to fund their AI investments. This trend risks pushing up borrowing costs for European companies and governments, as the increased supply of corporate bonds puts pressure on the market.
While tech sector bond issuances in Europe are still lower than in the US, investors expect a larger wave of offerings in euros, British pounds, and Swiss francs in the coming months.
Tech Giants Lead the Charge
Alphabet, Google’s parent company, launched its second euro-denominated bond sale this year, raising €9 billion. Other tech giants like Meta, Amazon, and Microsoft are also expected to expand their borrowing in Europe to fund AI infrastructure.
“Europe was lagging behind the US in terms of tech sector issuances, but activity is accelerating,” said Marion Le Morhedec, head of fixed income investments at Fidelity International. She estimates that bond issuances totaling €40 billion to €60 billion are currently in the pipeline.
Impact on European Markets
Issuing bonds in foreign currencies allows US companies to limit currency risk and take advantage of relatively lower borrowing costs in Europe. However, this increased supply of bonds risks widening credit spreads as US tech giants compete with other high-credit-rating corporations for investors.
According to LSEG data, US markets have absorbed over $250 billion in tech-related bond sales since the beginning of the year, an 81% surge compared to last year. In Europe, equivalent issuances stand at $39.3 billion, a 5% increase.
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For European companies, this shift may mean rethinking their borrowing strategies. Some are already opting for shorter-duration bonds as uncertainty surrounding long-term yields grows. As Christian Hantel, portfolio manager at Vontobel, explains, “We clearly see that corporate issuers, outside of the mega-hyperscalers, are avoiding long-dated maturities.”
A Delicate Balance
BNP Paribas forecasts that the net supply of euro investment-grade corporate bonds will jump 83% in 2027, climbing to €192 billion. This increase is largely driven by US companies issuing bonds in European markets, known as “reverse Yankees.”
Market Resilience Tested
The increased bond supply from US tech giants could test the resilience of European markets. Analysts warn that a series of mega-deals, valued at €10 billion to €20 billion each, could strain the market, especially if launched simultaneously.
European Central Bank President Christine Lagarde noted that bond offerings from tech giants have contributed to the rise in sovereign bond yields. This spillover effect is a key concern for investors, who are closely watching the volume of long-dated paper from big tech firms.
Bond Market forces and Investor Strategies
Despite concerns about the pace of returns on AI investments, analysts predict robust activity in bond markets. This optimism persists even as reservations led to a $2 trillion downturn in technology equities last month. Bond sales by US companies in Europe, termed “reverse Yankees,” are projected to reach €80 billion to €90 billion in 2027, primarily driven by major tech conglomerates expanding their infrastructure.
The surge in corporate bond issuance could also impact sovereign debt markets, already under pressure from fiscal risks and inflation. Tech giant bonds, offering high credit quality and competitive yields, may intensify competition for investment capital, further complicating the environment for both corporate and government borrowers.
