US investment-grade corporate bond sales hit a record $1.88 trillion this year, LSEG data showed. Big Tech companies borrowed heavily to fund AI projects, pushing average deal sizes higher. Victoria Fernandez said, "The market has absorbed the AI issuance and it is evident from the oversubscribed nature of the deals."
Nov 6 (Reuters) - US investment-grade corporate bond issuance climbed to $1.88 trillion this year, LSEG data showed, surpassing the previous annual record as Big Tech companies borrow heavily to fund their AI ambitions.
The 18.7% rise in debt issuance from a year ago until November 4 breached the previous record of $1.86 trillion raised in 2020 when companies stockpiled cash during the COVID-19 pandemic, driven by near-zero interest rates.
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However, this year the number of issuance fell about 4% to 1,084, implying that the average offering size swelled to roughly $1.7 billion from about $1.4 billion a year ago, thanks to a few jumbo transactions by the largest borrowers.
"The market has absorbed the AI issuance and it is evident from the oversubscribed nature of the deals," said Victoria Fernandez, chief market strategist and fixed income portfolio manager at Crossmark Global Investments.
"The AI companies do not seem to be slowing down in coming to both the USD and Euro bond markets."
However, the prospect of higher interest rates is adding to concerns about how quickly massive AI investment will translate into profits and whether heavily indebted companies can generate returns fast enough to service mounting interest costs.
Default insurance costs at some of the biggest AI spenders have surged in recent months. Oracle's five-year spread hit a record 325.45 basis points last month. Amazon, Alphabet, Nvidia and Meta also set records, though well below Oracle's level.
The Democratic sweep in US midterm elections has also sparked concerns about tougher AI regulation and a slowdown in the data-center buildout.
Goldman Sachs analysts flagged delayed AI monetization and growth in purchase commitments as key risks to more debt issuance, according to a note published on Friday.
The bank expects 35% of hyperscalers' capital expenditure to be funded through bond issuance in 2027, roughly in line with the levels seen this year.