The harsh European reality about US bonds

European investment bank Vontobel's analysis highlights that major US technology companies, particularly the hyper-scalers Amazon and Alphabet, are increasingly dominating the US public debt market with their long-term bond issuances. These tech giants, led by Alphabet, Amazon, Meta, Microsoft, Oracle, and SpaceX, have collectively issued over $180 billion in bonds (157 billion euros) this year, with projections of an additional $250 billion in debt issuance by year-end.

The most noteworthy aspect is their preference for the long end of the yield curve, as emphasized by Vontobel. In February, Alphabet issued a 100-year bond worth £1,000 million (€1,166 million), set to mature in 2126 - the first century bond from a tech company since Motorola's issuance in 1997. This issuance attracted significant demand, with subscription requests eight times larger than the amount issued.

Amazon leads in ultra-long dollar maturities, extending to 2076, while Meta and Oracle's longest-dated securities reach 2066.

Vontobel explains that the extended lifespan of data centers necessitates long-term debt issuance as a natural counterpart to the debt. As these tech companies issue large amounts of long-term debt, they compete with US Treasury bonds for the same investor pool. Each issuance absorbs investor capacity, which would otherwise have been allocated to Treasury bonds.

Consequently, the substantial borrowing by these companies to fund AI expansion is contributing to increased concern over the overall supply of US sovereign bonds, potentially raising the cost of financing for the country as a whole.

Vontobel concludes that while the tech giants' debt issuance is adding pressure to the long end of the yield curve, rather than causing it, the structural factors continue to dominate the landscape. These include the US government's fiscal situation, which shows no credible path to consolidation, with US debt already surpassing $40 trillion, deficits well above 6% of GDP, and an increasing debt-to-GDP ratio. The political will to curb this debt trajectory remains absent.