Corporate bond issuance by the world’s biggest AI investors has reached US$222 billion (AU$315 billion) this year, and that borrowing push is putting upward pressure on government borrowing costs, market strategists say.
The borrowers at the centre of the surge are the so-called hyperscalers, including search and cloud giants that are financing huge data centres and other AI infrastructure with bonds rather than only with cashflow.
The Bank for International Settlements this week flagged that issuance from the five largest hyperscalers has climbed rapidly, faster than previous bouts of heavy corporate borrowing, and that those volumes are reshaping demand in the bond market.
Commonwealth Bank head of market strategy Adam Donaldson says the scale of corporate issuance has created intense competition for funding in the same maturities governments use.
“There is a global fight for money. Investment in AI is one of the key factors driving up the cost of money.”
Donaldson points to a recent example in Australia where Alphabet, Google’s parent, issued local bonds with 10- and 20-year maturities, the same terms favourite among federal and state borrowers.
“That 10- and 20-year, that’s very much the space that sovereigns and the states occupy when they’re borrowing, so it’s a direct source for competition for funds.”
When corporate borrowers push up yields to attract investors, governments also face higher costs to roll or issue debt. Donaldson estimates the AI-related issuance has added roughly 50 basis points to Australia’s 10-year government bond yield, which would translate into about $3 billion extra in annual interest costs for the federal budget this year.
The AI borrowing trend is only one element driving global yields. Large fiscal deficits, spending on energy transition and rising defence outlays have all expanded governments’ demand for market funding and added to competition for investor cash.
Economists are split on the longer-term implications. Some argue heavy investment relative to savings can lift the so-called neutral rate of interest, which policymakers use as a guide for monetary settings. Others point out AI could lift productivity over time, a development that would tend to lower equilibrium rates.
Investors are also watching implications for banks. Australian lenders rely on offshore funding for part of their balance sheets, and higher global yields could raise their borrowing costs; commentary when the big four deliver earnings over the next fortnight may reveal how much pressure they are seeing.
