Silicon Valley is borrowing recklessly, and the market is aggressively dumping.

Tech giants’ AI funding frenzy is facing a cold shoulder from the bond market.

According to MarketAxess data, in this cycle, the prices of AI-related bonds with maturities of 10 years and above have continued to fall, making them one of the worst-performing issues in the investment-grade bond market.

The clearest example of market sentiment comes from Amazon. This Tuesday, the company issued $25 billion in bonds, but demand for long-dated bonds has been weak. Citing information from informed bankers and investors, the UK’s Financial Times reported that subscription orders for its five-year bonds were about 20% higher than for its 30-year bonds.

In addition, the yield on a 30-year bond from SpaceX rose from 6.7% at issuance less than two weeks ago to 7.3%.

According to Bank of America Global Research, among the five largest hyperscale cloud providers—Amazon, Google, Meta, Microsoft, and Oracle—their yields are currently about 0.6 percentage points higher than blue-chip bonds with the same credit rating and tenor; this risk premium is already the highest across all industries in the investment-grade market.

Oversupply weighs on demand

The direct trigger for this round of selloff is an unprecedented bond issuance wave launched by technology companies for the AI arms race.

According to Bank of America Global Research, so far this year, cross-currency issuance of high-rated AI-related bonds has reached $270 billion, nearly double the full year of last year.

The steady influx of new debt supply has sharply increased pressure on investors’ holdings.

John Lloyd, global multi-asset credit head at Janus Henderson, said that because many portfolios already hold large amounts of AI-related debt, investors have no choice but to sell existing hyperscale cloud provider bonds in order to free up space for Amazon’s new issuance. He said:

You have to offer enough concession to attract us to participate in the new issuance.

Recent severe volatility in technology stocks has also dampened market sentiment.

Lloyd added that some investors already have large exposure to the tech sector in their equity portfolios, which may further reduce their willingness to add related risk exposure in the bond market. Amanda Lynam, chief credit strategist at Goldman Sachs Research, shares the same view.

Doubts about long-term returns, investors shift to the short end

Selling pressure is concentrated in the long end, with the deeper logic being investors’ fundamental skepticism about the long-term returns of AI capital expenditures.

Mariya Entina, portfolio manager at the DoubleLine fund, said:

Buying 30-year bonds typically requires the company to have a very stable outlook and clear investment returns, but there are still questions about the long-term profitability of AI capital expenditure.

She said the firm is therefore more inclined to take more near-term risk.

Pramod Atluri, portfolio manager at Capital Group, also prefers short-duration bonds from hyperscale cloud providers. Atluri said:

The pace of technological iteration is so fast that long-term borrowing turns into a proposition with higher risk; what the industry’s landscape will look like ten years from now is something we simply can’t predict.

Entina also noted that the main buyers of long-dated bonds are typically insurance companies and pension funds. Such institutions need to match long-dated liabilities, and their investment style is often more conservative, with lower tolerance for the uncertainties mentioned above.

High interest rates make matters worse

The appeal of long-dated bonds from hyperscale cloud providers has been further damaged by elevated short-end interest rates on U.S. Treasuries.

With inflation staying persistently above target levels, and market expectations that the Fed policy rate will remain “higher for longer,” especially after the newly appointed Fed Chair Waller released hawkish signals at his first meeting last month, short-dated U.S. Treasuries have already offered quite attractive yields.

A credit-focused analyst said:

If you can lock in an attractive yield without going too far out on the yield curve, why take on more risk?

At present, the short-term borrowing costs for hyperscale cloud providers remain stable, indicating that the market is not worried about these companies’ near-term ability to service debt. But investors are making clear with their actions: whether this AI buildout wave can deliver its long-term promises is being judged much more cautiously by the bond market than by the stock market.

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