Andrzej Skiba, Head of BlueBay U.S. Fixed Income, and members of his investment team deliver level-setting market commentary and forward-looking insights into what's driving fixed income markets in this weekly series.
Tech bros vs finance bros: big tech’s mega bond issuance
Neil Sun, Portfolio Manager on the BlueBay U.S. Fixed Income team, discusses a significant shift in the bond market, where Silicon Valley tech companies, traditionally cash-rich, are now becoming major borrowers to finance their AI initiatives.
Key points:
- Silicon Valley tech companies, are increasingly borrowing from the investment-grade bond market, marking a shift in their funding strategy.
- This trend is driven by rising capital expenditure needs, with companies opting for debt issuance over equity financing due to favorable market conditions and tax benefits.
- The surge in tech bond issuance may lead to short-term market adjustments but offers opportunities for investors to acquire highly rated bonds at more attractive valuations.
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Welcome to The Weekly Fix. My name is Neil Sun.
There’s a new twist in the bond market – Silicon Valley is turning into one of Wall Street’s biggest borrowers. The same companies building the AI futures are now flooding into the investment-grade market to finance it. Or as I like to call it – Tech Bros meeting Finance Bros.
A few years ago, these companies barely issued. They were cash-rich, with best-in-class balance sheets. But that’s changing. Just this past week, we saw close to $75bn in bonds issued from tech companies. We believe this could mark the start of a new issuance pattern – where hyperscalers begin tapping the IG market more regularly for funding.
Why? Big tech firms have so far financed the AI build-out largely through their strong free cash flows. But as these firms continue to raise their capex guidance, they may be reaching a limit of what they are willing to fund internally. Alternatively, they could finance AI spending through equity – by either cutting dividends or reducing buybacks - but with spreads near historical tights and the added tax benefits, issuing debt simply looks cheaper.
Many of the recent tech deals are multi-tranche offerings across the curve – five-, ten-, and even fifty-year maturities – taking advantage of deep demand from insurance and pension funds that are hungry for long-duration, high-quality paper.
For bond investors, this means short-term supply indigestion, wider spreads, increasing index weight for the tech sector, and higher IG supply forecast for 2026. While that may feel bumpy in the near term, it should make valuations for Tech bonds more attractive – creating an opportunity to build up positions in highly rated mega-cap bonds at wider spreads and higher yield levels.
AI isn’t just transforming technology, it’s also reshaping the market techincals within the corporate bond market. The Tech Bros are now financing the future of AI through the Finance Bros.
That’s it for this week’s Weekly Fix. Thanks again for watching.
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