Fixed income concentration

Big tech firms are going all in when it comes to funding data centers destined to train AI models. It is expected that just the big hyperscalers (Meta, Amazon, Google and Microsoft) will invest $400Bn in infrastructure. Where will that money come from? It does come primarily from earnings, of course, but earnings are already being used to fund dividends, buybacks and other projects. At this scale and with rates still relatively low, and with IG spreads at historical minimums, it’s logical for them to tap the bond and loan market. Now look at the chart below: the amount of debt that is being issued in 2025 is 3X the annual average of the last 10 years. To a point that it will change the sector weight of the indices. The concentration problem (mag 7) is no longer an issue exclusively affecting the equity market. It is now building up in the bond market too, and once these bonds are included in the indices, passive investment vehicles will have to own them. With all the differences in the world, it does bring back memories of Ford and GM bonds and their weights in the bond benchmarks 15 years ago. History does rhyme.

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