BNP Paribas expects the multi-year rally in corporate bonds to break as technology companies saturate the market with new AI-driven debt. Analysts at the bank forecast approximately $400 billion in hyperscaler bond sales next year, contributing to a record $3.7 trillion in net fixed income supply.
This outlook reverses the preceding three years, when the same desk described credit markets as "yieldy, defensive and under-supplied." Viktor Hjort, BNP's global head of credit strategy, said "AI is driving credit markets from bond scarcity to bond abundance."
BNP Paribas analysts anticipate euro investment-grade spreads will widen by six basis points by the end of 2026, with dollar spreads widening by seven basis points over the same period. "Credit is becoming oversupplied at a time when government bonds are too," the analysts noted.
The European Central Bank reached a similar conclusion in August, publishing analysis on U.S. tech companies issuing debt in euros. The ECB found that U.S. tech now accounts for nearly one-tenth of new euro corporate issuance, with 40 billion euros of hyperscaler bonds currently outstanding.
Amazon and Alphabet emerged as the largest euro-area non-financial corporate issuers this year. The ECB's primary concern centers on market crowding rather than default risk. Passive funds rebalancing towards index-weighted hyperscalers mechanically push other borrowers out of the market as investors face finite balance sheets.
ECB staff estimate that hyperscaler capital spending will exceed $1 trillion by 2028, representing about three percent of current U.S. economic output. This substantial investment requires significant financing, contributing to the projected bond market saturation.
Separate reporting in July indicated that the five largest technology spenders had collectively doubled their debt to approximately $350 billion, expected to impact European markets and compound crowding concerns.
BNP Paribas is directly involved in the AI financing trend it warns about. The bank was one of seven lenders that provided $830 million in financing to Mistral in March, supporting the acquisition of 13,800 Nvidia chips for a data center south of Paris. The Mistral deal represents Europe's largest AI debt raise of the year, dwarfed by the $400 billion in American issuance projected for next year.
JPMorgan's Matthias Reschke said last month on the upcoming bond sales: "We don't doubt that we will be able to place it, it's all a question of price." This highlights the central tension in the market—while demand for high-quality tech credit exists, the sheer volume of supply will dictate pricing and the overall cost of capital.
Institutional demand, particularly from pension funds, insurers and asset managers, continues to target investment-grade credit, including offerings from high-quality technology companies. However, the anticipated volume raises questions about how much additional exposure these investors are willing to absorb without demanding wider spreads. Vanguard data shows value exposure to AI companies increased by five percentage points since the start of the year, with semiconductor exposure nearly doubling from 4.4 percent to 8.3 percent in March and April alone.
