AI borrowers drive nearly half of long-dated U.S. IG issuance. PIMCO sees 3 diversifiers (www.cnbc.com)

A recent report reveals that AI-related borrowers now constitute nearly half of the long-dated U.S. investment-grade corporate debt market, prompting investors to diversify their credit portfolios beyond just Big Tech. Lotfi Karoui, a strategist at PIMCO, highlighted that with the AI industry’s significant bond issuance, which Goldman Sachs estimates could reach $250 billion this year for hyperscalers alone and up to $570 billion for the broader AI ecosystem, traditional investment strategies must adapt. Long-duration investors face challenges due to increased volatility in U.S. Treasurys and potential slowdowns in AI-related spending following the recent U.S. midterm elections. Karoui suggests that investors consider alternatives like agency mortgage-backed securities, higher-rated private mortgage bonds, and emerging market debt to enhance diversification. Agency MBS have shown resilience amidst rate volatility, while AAA-rated non-QM mortgage bonds offer attractive risk-adjusted returns despite extension risks. Additionally, emerging market debt presents differentiated yield opportunities outside the AI realm, allowing investors to balance exposure against U.S. corporate risks. As the AI sector continues to reshape the debt landscape, these diversified strategies may better serve bond investors navigating this evolving environment.