Higher bond yields in an era of abundant supply

AI is usually discussed as a technology or equity market story. For fixed income investors, however, it is increasingly becoming a supply story. Consensus expectations for hyperscaler capital expenditure in 2027 now exceed USD 1 trillion, while expected bond issuance from the largest technology companies has risen sharply as more of that investment is financed through debt.

The funding requirement also extends well beyond the hyperscalers. Data centers require a substantial and reliable supply of electricity, drawing utilities and grid operators into the same investment cycle. As this infrastructure expands, financing needs are spreading across the wider AI ecosystem.

This new corporate borrowing arrives at a time when governments and supranational issuers already have substantial funding requirements. Fiscal deficits remain large and sovereign issuance is elevated, while public investment needs are growing. This means governments, technology companies and utilities are increasingly competing for the same pool of long-term capital.

This represents a reversal from recent years, when companies borrowed less, shortened maturities and reduced net issuance in response to higher rates. Limited bond supply, combined with persistent investor demand, provided powerful technical support for credit spreads. That scarcity is now giving way to greater bond abundance.

For investors, greater supply is not simply a risk. It should also create more choice and potentially better entry points into high-quality issuers. But it strengthens the case for active selection across sectors, maturities and currencies rather than relying on scarcity to keep spreads compressed.

For our detailed views on rates, credit and emerging market debt, including the developments that could make us more constructive, read the full Fixed Income Quarterly Outlook, or explore the key messages and positioning implications in Fixed Income Quarterly Outlook in Brief.