US Hyperscalers' Euro Bond Push Threatens European Borrowers

The European bond market faces a double threat from US digital giants: they're pulling ahead in the AI race and potentially crowding out European borrowers.

These hyperscalers, having burned through their cash piles to invest in data centers, are now turning to long-dated bond markets for funding. This has already led to €40 billion ($46.34 billion) worth of 'reverse Yankee' bonds being issued, accounting for just over 1% of the main euro corporate bond indexes.

However, if debt raising continues at this pace, European firms may struggle to access their domestic bond market, according to the European Central Bank (ECB). Investors may reduce holdings of other bonds to make room for large hyperscaler deals, creating a crowding-out effect that raises costs for issuers from unrelated industries.

The ECB warns that sustained strong earnings and future borrowing needs warrant close monitoring. With AI-related capital expenditure on data centers expected to top $1 trillion in 2026 alone, up to $400 billion of new debt is anticipated as a whole. This could stymie or crowd out Europe's domestic funding for AI infrastructure.

As Morgan Stanley research shows, Europe's data-center capacity grew only 15% over the past year, compared with 26% in the US, and could accelerate at an annual rate of 20% through 2030. However, this may not be enough to meet projected growth rates of up to 30% annually in the US.