Sovereign bond yields are climbing, with analysts attributing this trend to various factors, including rising oil prices and inflation concerns. However, Krishna Guha from Evercore ISI emphasizes that the primary driver is the demand for high-quality hyperscaler debt, which competes with government bonds.
He notes a 27% year-over-year increase in U.S. investment-grade corporate bond issuance, largely led by hyperscalers, indicating a growing appetite for debt as companies prepare for significant capital expenditures. Guha projects a 36% increase in capital spending by 2027, which, coupled with declining cash flows, suggests that these companies will need to rely heavily on external funding.
While Treasury yields experienced a temporary decline following the Treasury Department's announcement to double buybacks of longer-dated debt, the overall trend may continue upward due to geopolitical tensions affecting energy prices and inflation.
If Guha's analysis holds, the increasing demand for hyperscaler debt could sustain upward pressure on yields, influencing market dynamics and potentially prompting the Federal Reserve to adjust interest rates