U.S. Corporate Bond Issuance Surges Under the Banner of AI Investment, as Firms Rush to Borrow at Relatively Low Rates

U.S. corporate bond issuance nears record highs
Demand holds firm despite rising Treasury yields
Stronger borrowing incentives raise debt concerns

U.S. investment-grade corporate bond issuance is rapidly expanding, approaching levels last seen during the COVID-19 pandemic. While artificial intelligence (AI) infrastructure investment is often cited as the primary driver, market participants increasingly view the surge as a bid to lock in comparatively low borrowing costs amid economic uncertainty. At the same time, growing volatility in the U.S. Treasury market is pushing investor capital toward corporate bonds, while companies themselves are leaning more heavily on high-grade credit.

AI as a De Facto “Borrowing Amnesty”

According to the Financial Times on the 23rd local time, U.S. companies issued $1.7 trillion in investment-grade corporate bonds from the start of the year through late November, approaching the $1.8 trillion raised in 2020, when firms scrambled to secure liquidity during the pandemic. Big Tech’s AI-related spending—led by Amazon, Oracle, and Meta—has been cited as a major catalyst. Goldman Sachs estimates that AI-linked borrowing now accounts for roughly 30% of net investment-grade issuance.

Amazon issued $15 billion in bonds in November, its first U.S. bond sale since November 2022, citing general corporate purposes including capital expenditures. Oracle followed in September with an $18 billion offering tied to cloud investment, while Meta raised $30 billion in October to fund data-center expansion. Alphabet joined as well, issuing $17.5 billion in the U.S. market and $7.5 billion in Europe. Together, the four Big Tech firms issued a combined $88 billion in corporate bonds in the second half alone.

Notably, the surge is not limited to one-off financings by a handful of firms but reflects a broader, industry-wide shift. The FT argues that the rise in issuance is less about aggressive growth investment than about refinancing existing debt at relatively low costs and shoring up liquidity ahead of a potential economic slowdown. AI infrastructure—requiring heavy upfront spending on data centers and power—offers limited near-term returns, reinforcing the view that companies are raising cash irrespective of immediate earnings prospects.

Some in the market warn that AI has become a convenient pretext, blurring the true nature of the borrowing. While proceeds are publicly framed as funding data centers, power infrastructure, and semiconductor capacity, critics argue the underlying motive is defensive: building cash buffers in an uncertain macro environment. The FT notes a widening gap between AI-related borrowing and the revenues generated by those investments, cautioning that continued issuance at this pace could eventually weigh on corporate earnings and credit quality.

High-Grade Corporate Bonds Overtake Treasurys

Investor behavior is shifting as well. Despite rising Treasury yields, demand has struggled to keep pace with ballooning issuance, eroding the appeal of government bonds relative to corporate credit. In May, a U.S. Treasury auction of 20-year bonds cleared at an average yield of 5.047%, the first time since October 2023 that the rate exceeded 5%. Yields climbed further in secondary trading, with 20-year Treasurys reaching 5.103% and 30-year yields hitting 5.09%, underscoring market unease.

As Treasury yields rise without commensurate demand, investors are increasingly rotating into other fixed-income assets. ICE Data Indices show that investment-grade corporate bond spreads narrowed to 0.74 percentage points in September, the tightest level since 1998, and remained near 0.75 percentage points in October. The compression reflects investors’ willingness to accept credit risk in exchange for yield. Bank of America characterized the environment as one “awash with cash searching for assets.”

The appeal of top-tier corporate bonds has become especially pronounced. According to SIFMA, Microsoft’s AAA-rated bonds maturing in June 2027 yielded 3.63% as of late September—below the 3.69% yield on comparable three-year U.S. Treasurys. While the two moved in tandem after issuance, Microsoft’s bond yield decisively undercut Treasurys from August onward, signaling investor preference for elite corporate balance sheets over sovereign credit.

Although the U.S. 10-year Treasury yield has eased from a July peak of 4.48% to around 4.16%, the inversion between Treasurys and select corporate bonds remains visible. Fidelity International’s Mike Riddell noted that under normal conditions, top-rated corporate bonds should offer 15–20 basis points more than Treasurys purely as a liquidity premium. “What we are seeing instead is excessive demand chasing limited supply,” he said.

Eroding Trust in Treasurys Deepens Corporate Reliance

The concern is that not only investors, but also companies, are becoming overly reliant on high-grade corporate bonds. The U.S. Treasury’s rapid shift toward short-term issuance has triggered repeated spikes in the Secured Overnight Financing Rate (SOFR), prompting the Federal Reserve to activate its Standing Repo Facility to ease short-term liquidity stress. From a corporate perspective, this has undermined Treasurys as a stable benchmark for funding costs.

Diminishing confidence in Treasurys—amid foreign investor pullbacks, credit-rating downgrades, and weak auction demand—makes it harder for firms to anchor borrowing decisions to government yields. By contrast, robust demand has kept issuance of high-quality corporate bonds relatively smooth, encouraging companies to extend maturities and stagger borrowing. While this strategy can reduce near-term rate risk and stabilize cash flows, it also accelerates the accumulation of debt, raising longer-term financial risks.

Taken together, these developments suggest that the U.S. bond market’s center of gravity is shifting from growth toward recession preparedness. As concerns mount over fiscal deficits and interest burdens—and as large Treasury issuance looms—both sovereign and corporate funding environments are taking on a more defensive cast. Companies, tempted to lock in lower rates while they can, are borrowing aggressively, reinforcing dependence on high-grade corporate credit. The worry increasingly voiced in markets is that if a downturn materializes, the debt built up during this borrowing rush could amplify the shock.