Tech Giants' Bonds Offer Haven as Global Yields Surge
Global bond markets are experiencing significant turmoil, with widespread selling driving yields to multi-decade highs. In the U.S., the 10-year Treasury yield recently climbed to 4.81%, its highest level since early 2025, while the 30-year yield has been near a two-decade peak for nearly two months. Similar sharp increases are observed in major economies like the UK, Japan, Canada, and Italy.
The surge is attributed to several factors, including escalating geopolitical tensions, particularly the recent U.S.-Iran conflict, persistent inflation concerns prompting central banks to consider further interest rate hikes, and a dramatic increase in the U.S. government deficit, which has surpassed $40 trillion. However, a new dynamic is emerging: the artificial intelligence revolution has created a novel competitor for government debt: major technology companies.
These tech giants, previously known for strong free cash flow, are now issuing significant amounts of debt. Companies like Alphabet, Amazon, Meta, Microsoft, and Oracle have collectively issued $220 billion in bonds since the start of the year, according to LSEG data. This trend extends to related companies, such as Ireland's Kingspan, which is raising 800 million euros in green bonds due to increased data center construction orders. Investors are increasingly choosing high-rated corporate bonds from profitable tech firms, offering yields over 6%, over government debt.
Interestingly, this bond market volatility has not significantly impacted stock markets. While typically rising bond yields, especially amid geopolitical stress, would drive investors towards safer assets like bonds and away from stocks, the equity market remains robust. This anomaly is partly explained by strong investor confidence in tech companies, with some analysts suggesting that certain tech firms might be perceived as more secure than the U.S. government.
In contrast to the global trend, Israel's bond market is experiencing a decline in yields. Despite geopolitical uncertainties and post-war economic conditions, Israel's strong macroeconomic data, including a favorable debt-to-GDP ratio (68% compared to the U.S.'s 102.3%) and a stable local currency, are providing a sense of stability for investors. This situation presents an opportunity for investors to lock in annual yields above 5% on U.S. 30-year Treasury bonds, though potential risks include inflation eroding real returns and currency fluctuations for Israeli investors.
