Summary:<\/p>\n
\u2013 AI companies are issuing record amounts of debt to fund their expansion.\n<\/p>\n
\u2013 Bond investors are demanding higher yields as technology<\/a> companies flood the market.<\/p>\n \u2013 Analysts say strong corporate finances are supporting demand, but investor capacity may have limits.\n<\/p>\n NEW YORK \u2014 The wave of\u00a0debt\u00a0issuance funding the artificial-intelligence buildout is testing the limits of investor demand, with some large bond buyers warning that the market is showing signs of indigestion.\n<\/p>\n While fund managers remain comfortable with the credit quality of companies such as Amazon and Alphabet<\/a>, Google<\/a>\u2018s parent company, they are increasingly demanding higher yields to accommodate the flood of issuance. This has raised concerns that a tipping point could emerge if\u00a0AI\u00a0spending continues to escalate.<\/p>\n \u201cYou\u2019ve started to see the indigestion show up in tech spreads in particular,\u201d said Neil Sutherland<\/a>, head of U.S. fixed income<\/a> at Schroders<\/a>.\n<\/p>\n Tech corporate bond spreads are the extra yield investors demand to hold their\u00a0debt\u00a0over U.S. Treasuries; wider spreads signal higher perceived risk, while tighter spreads reflect stronger investor confidence.\n<\/p>\n \u201cIt\u2019s not really a credit issue with higher-quality technology companies, such as Amazon and Google. But the more they have to issue bonds, the more investors are demanding a premium to absorb that\u00a0debt.\u201d\n<\/p>\n Analysts cited Amazon\u2019s recent long-dated $25 billion bond sale, which priced at roughly 120 basis points over Treasuries. Last year, the spread would have been roughly half of that, they said.\n<\/p>\n \u201cTech has gone from trading materially through the market to actually trading wider than the market,\u201d Sutherland said. \u201cThe higher spreads \u2026 make other parts of the market look more expensive on a relative value basis.\u201d\n<\/p>\n Alphabet declined to comment. Amazon did not respond to a request for comment.\n<\/p>\n Tech spreads are currently at 89 basis points, 9 basis points wider than the overall investment grade market, according to Karen Choi<\/a>, portfolio manager at Capital Group<\/a>.\n<\/p>\n The widening reflects a major change for a sector that historically enjoyed some of the tightest spreads in corporate credit due to strong balance sheets and relatively modest borrowing needs.\n<\/p>\n The surge in\u00a0AI-related bonds, at a time when governments are still spending heavily, has been a leading factor pushing up Treasury yields, as buyers demand higher returns to keep purchasing the flood of bonds hitting markets. Any pullback in tech issuance could support longer-dated Treasuries.\n<\/p>\n Larger concessions<\/p>\n