MEOH

By Joy Wiltermuth

'Hyperscalers' burned through their cash. Now their bond deals are helping fuel the economy.

AI has become one of the bond market's biggest catalysts in 2026.

The artificial-intelligence financing boom has begun to challenge war, hopes for a Middle East peace deal and the midterm elections as the year's biggest catalyst for the bond market.

Bond yields moved higher together with oil prices (BRN00) for much of 2026, especially when fears of an intensification of the Iran war increased. They often eased when oil prices fell on hopes for progress toward peace.

That correlation has broken down as concerns over AI grow, capital has gotten more expensive and the war has drifted into its ninth month.

Since late October, on days when tech stocks dropped sharply, investors have been flooding into the roughly $32 trillion U.S. Treasury market for safety. While that has kept a lid on Treasury yields, it hasn't resulted in lower AI borrowing costs.

"The competition for capital has been so fierce that everyone is paying up to borrow," Matt Brill, head of North America investment-grade credit at Invesco, said on Tuesday.

Furthermore, the scope of the borrowing has become so enormous that many in the fixed-income community on Tuesday were more interested in talking about the latest batch of "hyperscaler" bond deals than the likely impact of the midterm elections, Brill said.

"To me, this is fueling the economy," he said. "It's key to follow where the dollars are coming from."

Many of the tech giants leading the AI buildout - with the exception of Microsoft (MSFT) - have already burned through their enormous piles of free cash flow for what's expected to be the largest U.S. infrastructure project since the building of the railroads.

That has left tech more reliant on borrowing. This year's blistering competition for capital led the market's five hyperscalers - Microsoft, Meta, Amazon.com, Alphabet and Oracle - to issue $271 billion in debt already this year, Goldman Sachs credit analyst Amanda Lynam said in a Tuesday client note. That's roughly the size of New Zealand's gross domestic product.

Nearly every dollar borrowed by the hyperscalers since the beginning of the year now costs more to secure, Brill said. That also means most of the debt sitting in investor portfolios is underwater.

"Investors are a little bit frustrated," he said. "What seems to be a good opportunity hasn't been to date." The hope is that performance improves and recently higher yields offer adequate compensation for the risks investors are taking.

For their part, Oracle (ORCL) and Meta (META) in recent days outlined plans to issue both stocks and bonds. That underscored the growing need to alleviate some of the AI funding pressure hitting the investment-grade corporate bond market.

Meta, at last check, was looking to raise about $15 billion from the U.S. portion of its cross-currency bond deal on Tuesday, according to Bloomberg. That's part of a trio of bond deals in recent days from the hyperscalers, a group that also includes Amazon (AMZN) and Alphabet (GOOGL) (GOOG).

On days when hyperscalers have large bond deals in the market, Treasurys often have come under selling pressure, resulting in higher bond yields. That speaks to the "crowding out" of capital borrowers are facing this year.

"AI's role in the bond market is becoming close to how geopolitical headlines affected yields earlier this year - unscheduled, sometimes closer to rumor than fact, and the catalyst for extreme narratives that shift from one week to the next," Will Compernolle, macroeconomic strategist at FHN Financial, wrote in a Monday client note.

The biggest AI players have been willing to pay more to tap the debt markets. Oracle's 10-year bonds earlier this week priced to yield about 8%, while those issued late last week by Microsoft were around 5.5%. Meta's 10-year bonds were expected to price closer to 6.5%.

Corporate bonds are priced at a premium, or spread, to the relevant risk-free Treasury rate, the 10-year yield.

The AI debate has gone from "funding ambition at any cost" to expecting or requiring returns on that investment, said Oliver Shale, U.S. investment specialist at Ruffer.

Earnings remain robust and the committed capital spending continues, Shale said. But "exceedingly high expectations" have been baked into market prices, leaving only a "small margin of safety" for everything to turn out as hoped, he added.

Tech stocks SPX COMP closed higher Tuesday after a brutal couple of weeks. The benchmark 10-year Treasury yield BX:TMUBMUSD10Y rose 5.8 basis points to 4.951%, its biggest daily climb since Sept. 28, according to Dow Jones Market Data.

-Joy Wiltermuth

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