US Big Tech firms are currently borrowing at such high levels, primarily to fund their AI initiatives, that bond investors are starting to perceive some emerging market corporate bonds as less risky. This shift is evident in specific comparisons, such as SK Hynix Inc. bonds maturing in 2031 now yielding only nine basis points more than Amazon.com Inc. bonds, a significant reduction from a third of this level a year ago. Furthermore, hedging the credit risk of the South Korean company is now cheaper than that of many US tech giants.
This reordering of risk perception extends beyond individual companies, marking a historic first where risk premiums on emerging-market corporate debt indexes are converging with those of comparable US benchmarks. This indicates a broader market reassessment of the relative safety and risk associated with these investment categories. The substantial capital influx into AI by US tech firms is a key driver behind this phenomenon.
The trend suggests that the aggressive investment in AI by major US tech companies is leading to a re-evaluation of credit risk across global bond markets. This could have significant implications for investment strategies, as emerging market debt potentially becomes a more attractive option compared to the debt of highly leveraged US tech firms, even those in leading positions.
