European pension funds and insurers are increasingly financing the US artificial intelligence boom, buying long-dated bonds that credit rating agencies regard as safe.
Hyperscaler debt “may look like a possible alternative to some safe-haven style securities”, ECB analysts wrote in a blog on Monday (31 August).
But they also warned that these bonds could become less safe as AI companies continue to take on more debt in the coming years.
Hyperscaler debt refers to corporate bonds and loans issued by Big Tech companies such as Microsoft, Meta, Google, Amazon, and Oracle to finance massive costs of building AI and cloud infrastructure.
Ratings may be based on “assumptions on future revenue growth and leverage which may not stand the test of time”, creating a risk of “mispricing of credit risk,” the ECB’s financial experts wrote.
Large European institutional investors, primarily pension funds and insurers, looking for safe places to park large sums for long periods, have traditionally bought sovereign bonds — German ones in particular.
But US tech giants looking for ever more sources of finance have started to issue corporate bonds with long maturities, often longer than 15 years, especially attractive to such investors.
Just five companies, Alphabet, Amazon, Meta, Microsoft and Oracle, accounted for 15 percent of the growth in euro-denominated corporate bond holdings by euro area investors in the year to March 2026, according to the ECB blog.
Buying up large amounts of long-dated corporate bonds might crowd out demand and push up yields for government debt.
There are already signs this has already happened in the US but so far the ECB experts found no signs of such spillovers taking place in the euro area.
Wester van Gaal