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Global corporate bond markets reshaped by AI debt sales
- Big Tech bond offerings from Europe to Japan and Switzerland show smaller markets, traditionally dwarfed by the U.S., can flex their muscles in the $40 trillion corporate debt sector.
Google-parent Alphabet (GOOGL.O) is already one of the largest outstanding borrowers in the sterling and Swiss franc corporate bond markets, while Amazon (AMZN.O) raised 14.5 billion euros ($16.88 billion) in March from an eight-part deal, the biggest ever in the euro corporate bond market, LSEG said.
The debt issuance by so-called “hyperscalers”, or Big Tech, outside the United States is part of a campaign to diversify funding early as they plan to finance trillions of dollars of investment in AI infrastructure, mainly data centres, in the years ahead, bankers say.
Companies can also hedge their currency risk on global assets by issuing debt in foreign currencies, benefiting from relatively cheaper borrowing costs in regions like Europe.
Alphabet broke records across markets, with its yen, Canadian dollar, Swiss franc and sterling deals all breaking borrowing marks in respective currencies.”If you fast forward 12 months looking at the pace of investment of these companies, some of these companies are going to be already among the biggest issuers globally in any currency,” said Giulio Baratta, co-head of investment-grade finance at BNP Paribas.
Meanwhile, Alphabet and Amazon have helped increase borrowing by non-financial U.S. corporations in Europe to above 60 billion euros ($69.85 billion) this year, another record.
DEBT SALES RECORD
Morgan Stanley forecasts euro debt issuance from the hyperscalers to hit roughly 50 billion euros in borrowing this year, a move that could help the U.S. edge past France as the largest provider of overall corporate debt in the euro zone.”A lot of these markets, including euro, have evolved and now provide a lot more depth and opportunity for larger capital raising than was historically the case,” said John Servidea, global co-head of investment grade finance at JPMorgan, which guided recent offers for the two hyperscalers.
Hyperscalers sold a record amount of international non-financial corporate bonds this year in markets such as the Swiss franc and yen, LSEG tracked.
The capacity for U.S. companies beyond the hyperscalers to raise considerable amounts of money in such markets has not gone overlooked, Servidea added.“They’re definitely looking at other markets more seriously than they would have done before.”
On a broader basis, currencies such as the Australian dollar and Hong Kong dollar have also seen an increase in borrowing as global corporations diversify their funding sources.
Meanwhile, amid international tensions and policy uncertainty, investors are turning to diversification away from the U.S. currency.
BUILDING UP EXPOSURE TO AI
Hyperscalers’ non-dollar issuance has doubled to 30% of their total bond funding this year, Bank of America said.
“It means that Big Tech can go longer periods between taps of the U.S. market and borrow at rates that are in some cases cheaper than the U.S. dollar market, or at least similar,” Servidea said in an email.
Heavy borrowing can weigh heavily on a borrower’s bonds, and experts see indicators of hyperscalers underperforming the U.S. corporate bond market. If you visit it less often, that can assist to lessen the hit.
BNP Paribas, which also arranged deals for Alphabet and Amazon, said the companies were mainly holding the cash in the currency they are raising rather than converting them back to dollars.
As for investors, they are seeking to gain exposure to the AI theme in the international bond markets where technology brands had a limited presence before.
Nicolas Forest, chief investment officer at Candriam, is one example who is buying into the euro offers from hyperscalers to increase exposure to the IT industry in the European bond market.
By the end of April, one round of issuance had seen Alphabet replace the UK’s Prudential as the fourth-largest borrower in ICE BofA’s pound corporate bond index and the sixth-largest in Swiss francs.
As tech issuance increases, corporate bond markets outside the U.S. will be more exposed to tech trends, for better or worse.“If there are problems with (AI), it will probably create more volatility,” said David Zahn, head of European fixed income at Franklin Templeton.
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IHC forms larger bench to hear plea against PTI’s Sept 27 protest
The Islamabad High Court (IHC) has issued a written decision on a petition challenging Pakistan Tehreek-e-Insaf’s (PTI) scheduled September 27 protest and long march, while creating a three-member bigger bench to consider the matter.
The larger bench will comprise IHC Chief Justice Sarfraz Dogar, Justice Azam Khan and Justice Muhammad Asif. The bench is slated to hear the case on September 10.
Chief Justice Sarfraz Dogar issued a three-page written order from the last session and directed the chief secretaries and inspectors general of police of all four provinces to come before the court in person on Thursday.
PTI finalises backup protest plan if Minar-e-Pakistan demonstration is denied permission
The court also summoned the Islamabad chief commissioner, Islamabad IG and deputy commissioner in their personal capacity. The advocate generals of all four provinces and Islamabad have also been asked to assist the court in the proceedings.
The petition was submitted by a businessman who contended that PTI’s intended demonstration could disrupt citizens and economic activity in Islamabad. His counsel informed the court that legislation governing protests in the capital already exists and highlighted concerns about the likely use of government resources during the planned mobilisation.
During the previous session, the petitioner’s lawyer also referred to PTI’s 2024 protest and brought relevant remarks and newspaper reports before the court. He suggested that protests should not be utilized to exert pressure on governmental institutions and judges.
The court remarked that the subject was of substantial importance and, in view of its sensitivity, issued a notice to the Attorney General for Pakistan for help in the case. The court then determined that the dispute should be heard by a larger bench.
The plea came after PTI organized a September 27 rally and long march towards Islamabad. The party has said the mobilisation is focused at getting access to party founder Imran Khan for his family and personal doctors, as well as raising concerns regarding his legal and prison-related affairs.
The IHC has fixed the subject for further hearing on September 10, when the summoned officials are likely to appear before the three-member bigger bench.
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Iran says it caught US underwater drone in Strait of Hormuz
Iran’s Revolutionary Guards said on Tuesday it has captured a U.S. uncrewed submarine at the entrance to the Strait of Hormuz, offering a rare insight at how underwater drones are being used in military operations.
Iranian state media reported the craft was a Dive-LD, a large autonomous underwater vehicle made by California defense firm Anduril. The 19-foot (5.8-metre) submersible can carry out duties like mine countermeasures, seabed mapping, intelligence collection and the inspection of undersea infrastructure such as cables and pipelines, the business has said. “We detained one of the most advanced, clever and unmanned submarines of the terrorist American army near the entrance to the Strait of Hormuz. This submersible is equipped with the latest technologies,” the Revolutionary Guards Navy said in a statement broadcast by Iranian state media.
In response, a Pentagon spokesperson revealed a underwater drone had “malfunctioned more than a day ago.” “It was surveying regional seas in support of ongoing operations. The defective drone was an earlier model that neither collected sensitive data nor carried any classified sonar or radar technology,” the spokesperson stated.
Anduril confirmed the loss of one of its vessels, but minimized the seriousness of the incident. “Dive-LD is an attritable autonomous system, meaning it is built from the outset to operate in perilous conditions where loss of the vehicle is a predicted possibility,” a company representative stated.
The U.S. Navy is spending extensively in unmanned naval systems, including undersea and surface vehicles, as it seeks cheaper ways to monitor broad expanses of ocean, gather intelligence and track hostile ships and submarines without putting troops at danger.
According to Anduril’s website, Dive-LD can operate for up to 10 days without returning to base and is meant to dive to depths of as much as 6,000 metres (19,700 ft). Dive-LD units cost roughly $2.5 million each, U.S. military news site DefenseScoop reported in 2024.
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Dollar wobbles, oil’s dash to $100 chills sentiment, Yen stands big
The Japanese yen was pinned near its best level since February on Wednesday, leaving the dollar on the defensive as traders grappled with oil prices heading toward $100 a barrel amid an expanding war in the Middle East.
Iranian-backed Houthis in Yemen attacked several Saudi cities, drawing a U.S. partner further into a battle that has dragged on for more than six months, as U.S. forces struck multiple Iranian oil tankers and Iran threatened a U.S. station in Jordan.
Brent crude futures rose by more than 1.48% to $99.37 a barrel, weighing on global markets ahead of a U.S. inflation data on Friday that will set the stage for central bank meetings next week in the U.S. and Japan.
The currency market nudged the dollar down a touch in response, though some analysts said that was due to the yen’s swift rally over the past week.
The euro held constant at $1.1631 while the pound was last bought at $1.3546. The dollar index, measuring the U.S. currency against a basket of six major rivals, was at 98.15, near its lowest level in nearly two weeks.
OCBC strategists said the current increase keeps Fed policy implications from higher energy prices in focus, especially after last week’s robust U.S. payrolls report reignited expectations of another rate hike. “Higher oil and rates should help limit USD fall for now but we anticipate a more dramatic move will await confirmation from the impending inflation data,” they said in a note.
The yen has been under focus after its 4% surge in September that has altered the math for the popular carry trade in which investors borrow in yen at a low cost and invest in other currencies and assets yielding better interest.
The yen was stronger at 153.65 per dollar, close to the seven-month peak of 152.89 struck on Tuesday. The surge has been broad-based with the Japanese currency strengthening against the euro and sterling as well as favorite carry-trade targets such as the Mexican peso and Turkish lira.
The increase has been fueled by expectations of quicker tightening by the Bank of Japan and the return of offshore cash by Japanese investors and pressure from Washington for a higher yen.
Traders broadly expect the BOJ to hike rates by 25 basis points at its September 17-18 meeting but the rise will rest on if Governor Kazuo Ueda delivers hawkish comments and the wild card will be the Federal Reserve.Aninda Mitra, head of Asia macro and investment strategy at BNY Investments, stated “Much will depend on how the market prices in the Fed’s path of interest rates too.We estimate the Yen’s “fair value” to be in the 140’s and a further move to that area should not be a total surprise following what has clearly been an overshoot to the side of excessive Yen weakness.”
The Australian dollar gained 0.12% to $0.7225, just below a four-month high set in the previous session, in Pacific trade. The New Zealand dollar was up 0.16% at $0.5862.
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