Photo: Enguerrand Artaz © LFDE
By Enguerrand Artaz, Strategist, La Financière de l’Échiquier (LFDE)
France’s OAT[1] above 4% for the first time since 2009, the 30-year US yield at its highest level since 2007, the Japanese 10-year approaching the 3% threshold… and equity markets beginning to show a degree of fragility as interest rates surge almost everywhere in the world. The lack of progress in the Iran conflict, after Donald Trump announced he would not extend the ceasefire that expired on 17 August, certainly acted as a short-term catalyst, but the drivers of this move run deeper.
Beyond inflation fears linked to Iran, the bond market is in fact standing at the crossroads of issues that are structural for the economy and markets: on the one hand, the deterioration of public finances and the increase in debt servicing costs in Western countries; on the other, AI and the financing of its colossal capital expenditure. These two issues are feeding into each other. To fund AI development, technology giants — the hyperscalers — have made massive use of bond markets in recent months. From barely 1% in 2024, bond issuance dedicated to financing AI reached 18% of total global Investment Grade[2] issuance in the first half of 2026. This forceful arrival of hyperscalers in the credit market has driven a broad surge in issuance volumes, up 36% since the start of the year compared with the same period last year.
This flood of bond supply is increasingly difficult for investors to absorb. Or rather, it is leading to reallocations, with long-dated government debt among the first casualties. The reason is simple: competition is direct. First, hyperscalers mostly fund themselves at long maturities. Around 70% of debt issued has a maturity of seven years or more, with an average maturity estimated at around 15 to 17 years. A recent Goldman Sachs[3] study thus estimates that hyperscaler issuance accounts for more than 40% of total global Investment Grade issuance with maturities beyond 15 years.
Second, technology companies are now paying fairly comfortable spreads versus government bonds in the various currencies in which they issue. In recent days, Alphabet, for example, issued a 20-year bond in Australian dollars at a yield of 6.95%… while the Australian sovereign 20-year yield stands at 5.45%. Finally, the investors likely to buy hyperscaler debt are today the same ones who hold government debt. In the United States in particular, as the Fed reduced the size of its balance sheet and foreign central banks saw their stock of US debt stagnate, private investors stepped in. They now hold 73% of US debt, compared with 50% 10 years ago. And these are precisely the same investors most likely to buy hyperscaler debt, often issued with an attractive premium, at similar maturities, and without the public-finance deterioration issues that sovereign bonds carry.
In short, bond markets are witnessing a clear crowding-out effect: AI debt flooding the market is being absorbed at the expense of government bonds. And this is likely only the beginning. On the one hand, AI financing needs are rising: several hundred billion dollars of new bond issuance can be expected in the quarters ahead. On the other hand, governments’ financing needs are also continuing to increase, either because of the ongoing deterioration in public finances (France, the United States, the United Kingdom), or to fund structural investments (Germany, Japan to a lesser extent). Unless one imagines a return to massive asset purchases by central banks, which hardly appears to be on the agenda, this heightened competition can only keep driving yields higher. With, in time, the risks this poses for financing the global economy.
[1] French government bond
[2] Refers to issuers or bonds rated between AAA and BBB or Aaa and Baa3. These securities carry a low default risk.
[3] IG Credit – Too Much, Too Fast, Jeffrey Papai, 12.07.2026
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