US Tech Firms Flood Euro Bond Market, Raising Credit Risks and Borrowing Costs
Impact of US Tech Giants on Euro Zone Bond Markets
Surge in AI-Driven Investments and Debt Issuance
FRANKFURT, Sept 2 (Reuters) - U.S. tech giants are flooding the euro zone bond market to fund huge AI investments, potentially crowding out other borrowers, pushing up financing costs even for governments and raising credit risks, according to a European Central Bank blog post.
Tech firms such as Google, Amazon and Microsoft, often referred to as hyperscalers, could spend as much as $1 trillion on AI-related investments by 2028, credit analysts say, forcing them to tap debt markets around the world.
Market Share and Issuance Trends
The firms have about €40 billion ($46 billion) of bonds outstanding in the euro zone, a relatively small share of the market, but account for nearly 10% of gross new issuance. Amazon and Alphabet have been the largest corporate issuers in the euro zone bond market this year.
Potential Effects on Borrowing Costs and Credit Risks
"U.S. big tech companies could push up borrowing costs for all sectors as they accumulate debt and account for a growing share of bond markets, with a potential spillover to the sovereign and supranational segment of the bond market," the blog, which does not necessarily reflect the ECB's views, said.
The volume of new debt issued by big tech firms could test investor appetite, while expectations of even greater bond supply may amplify this effect, potentially lifting borrowing costs across the market. The impact could be especially pronounced given limits on how much debt investors can absorb.
Investor Behavior and Market Dynamics
Tech firms may also crowd out other issuers as passive investors that track bond benchmarks automatically increase their holdings of the sector, putting additional pressure on competing bonds and influencing spreads.
Credit Ratings and Risk Assessment
The blog's authors also argued that the relatively high credit ratings assigned to big tech debt may prove overly optimistic.
"The way rating agencies approach this sector may be based on assumptions on future revenue growth and leverage which may not stand the test of time, heightening the vulnerability to mispricing of credit risk," the blog said.
Additional Information
($1 = 0.8636 euros)
(Reporting by Balazs Koranyi; Editing by Mark Potter)
