BNP Paribas warns AI debt boom will end credit bull market

BNP Paribas has warned that the multi-year rally in corporate bonds is heading toward a breaking point, as technology companies flood debt markets with borrowing to fund artificial intelligence infrastructure. In a report published this week, the bank's analysts laid out their outlook for what they called "the end of the bull market," driven by a wave of bond issuance that may soon overwhelm investor demand, Bloomberg reported.bloomberg

The bank estimates that bond issuance by major hyperscale cloud computing companies — including Amazon Amazon.com, Inc. ↘ 0.35%, Alphabet ↗ 0.78%, and Microsoft ↘ 0.99% — could reach approximately $400 billion next year. Net supply across the entire fixed-income market is projected to hit a record $3.7 trillion, forcing corporate bonds to compete with a surge of government debt for investor capital.thenextweb+1

From Scarcity to Abundance

Viktor Hjort, BNP Paribas's global head of credit strategy, and colleagues wrote that "AI is driving credit markets from bond scarcity to bond abundance," adding that "in the coming quarters, there are no obvious demand drivers capable of keeping up with the trend of supply growth".news.futunn+1

The assessment marks a shift in the bank's credit outlook. Over the past three years, the corporate bond market benefited from higher yields, strong defensive characteristics, and limited supply. That dynamic is now reversing. BNP Paribas forecasts that euro-denominated investment-grade credit spreads will widen by roughly six basis points by the end of 2026, with U.S. dollar spreads widening by about seven basis points.moomoo

A Broader Wall Street Concern

BNP Paribas is not alone in flagging the risks. Morgan Stanley ↘ 0.55% forecast in June that global AI-related debt issuance would more than double to nearly $570 billion in 2026, according to Reuters. Goldman Sachs The Goldman Sachs Group, Inc. ↘ 0.36% estimated in August that nearly $500 billion in AI-related debt had already been tracked across the market. Matthias Reschke, JPMorgan's ↘ 0.84% head of European investment-grade financing, said last month that the scale of AI-related bond issuance is testing investors' absorption capacity, noting: "We have no doubt that these bonds will ultimately be sold; the issue lies entirely with pricing".reuters+2

Late-Cycle Pressures

BNP Paribas analysts warned that "AI is accelerating the transition of the economic and credit cycles from the mid-cycle to the late-cycle phase," noting that credit is becoming oversupplied at the same time government bonds face their own glut. For credit investors, the central question may no longer be whether the market can absorb the debt, but how high yields and spreads must rise to do so.thenextweb+1