When AI meets deficits: Global wave of bond issuance sets a record, market demand remains strong.

With bond issuers taking advantage of loose market conditions to finance all activities from the AI project boom to M&A recovery, global bond issuance has soared to a record level this year. Data shows that as of 2025, global bond issuance has reached $5.95 trillion, surpassing the full-year total of $5.93 trillion in 2024. With still over a month left in the year and Wall Street gearing up for the busiest November in over a decade, it suggests that global bond issuance in 2025 will reach new highs. This year's bond issuance boom is mainly driven by Financial Institutions, Inc. and governments. Governments around the world are increasing their bond issuance to offset expanding budget deficits. At the same time, tech giants like Alphabet (GOOGL.US) and Meta Platforms (META.US) issued massive bonds, leading to a two-thirds increase in debt issuance in the communication sector compared to the previous year. Despite the flood of debt leading to widening corporate credit spreads, global credit risk indicators remain near their lowest levels since 2007. Market demand remains strong, with bond investors seeing a total return of over 7% this year, the best performance in the past five years. Sabrina Fox, leverage finance expert at Fox Legal Training, said, "We are in a period where demand for credit, flexibility, and debt management are all at historical highs. All of these factors are playing out at the same time. Market pricing can be described as perfect." Meta issued $30 billion in bonds on October 30, the largest U.S. high-grade bond sale since 2023, attracting up to $125 billion in demand, a record high in public company bond issuance history. Alphabet also returned to the European bond market on November 3, issuing a total of 3 billion multi-tranche euro-denominated benchmark bonds to support its record spending in AI and cloud infrastructure. Japan's SoftBank, which heavily bets on AI, also issued dual-currency bonds in October. John Sales, Head of Americas Investment Grade Bond Syndicate at Goldman Sachs Group, Inc., said, "It is entirely reasonable to assume that a large part of capital expenditures will take the form of debt." He pointed out that these tech giants have excellent balance sheet positions, giving them the ability to leverage up in times of Fed rate cuts and low spreads. Meanwhile, investor demand is keeping pace with bond issuance. In September, BNP Paribas estimated that in the U.S. market, investors had about $74 billion more cash available for reinvestment than the total bond issuance by companies. November Bond Blitz High-grade bond issuance in the U.S. set records in both September and October, and this bond issuance frenzy has continued into November, although the issuance window is expected to narrow as the holidays approach in December. Matt Brill, Head of North America Investment Grade Credit at Invesco, said, "It could be advantageous if you can hold enough cash for the next two weeks, as I believe supply will dry up by then." U.S. corporates are also stepping up their bond issuance in Europe. Data shows that this week alone, Alphabet, Colgate-Palmolive, Booking Holdings (BKNG.US), and Morgan Stanley (MS.US) issued bonds in the euro market, while Verizon (VZ.US) issued pound-denominated bonds for the first time since 2020. As of Thursday, the bond issuance frenzy in the European market continues. Eleven borrowers, including Orange in France, CaixaBank in Spain, and Raiffeisen Bank International in Austria, are expected to price new bonds. Orange is conducting its largest five-tranche euro bond issuance since 2019. Surge in Public Sector Borrowing The surge in borrowing by the public sector has been a key factor in driving record bond issuance since the pandemic-induced government budget deficits. It is estimated that investment-grade bonds issued by governments and government-related entities this year account for 69%, the highest level since the global financial crisis of 2010. The International Monetary Fund (IMF) noted last month that global public debt is expected to exceed 100% of GDP in 2029, the highest since 1948 when countries were recovering from World War II. For sovereign bond issuance, Spain leads with three issuances this year totaling 35 billion (about $40 billion). The 14 billion (about $18 billion) bond issued by the UK in September and the 18 billion (about $20 billion) two-tranche bond issued by Italy in January also rank among the largest deals of the year. The bond issuances by Spain and Italy attracted subscriptions of over 140 billion each. However, this is not a "feast for all" in the debt market. Recent large corporate bond transactions have come from high-rated and well-known companies, squeezing out potential issuers. Signs indicate that oversupply is pushing up risk premiums. The average spread on U.S. high-grade bonds widened to 82 basis points on Monday, the highest since July 1. Mark Clegg, senior fixed income trader at Allspring Global Investments, said, "Many investors are willing to sell lower-rated bonds and buy these newly issued highly liquid AA-rated bonds. The question is, when can investors feel comfortable maintaining an overweight position in the tech sector?" M&A Financing Abundant liquidity is also evident in the high-yield bond market. Several lending institutions, including Bank of America Corp, Citigroup, and Morgan Stanley, recently participated in the largest leveraged buyout financing everproviding debt support for the $20 billion acquisition of Electronic Arts Inc. (EA.US), a video game maker. Data shows that global M&A volume exceeded $1 trillion in the third quarter, only the second time it has reached this level. This is a shift from the downturn caused by earlier U.S. tariff turmoil. Conor Hillery, Co-Head of EMEA at Morgan Stanley, expects "large-scale M&A transactions in the EMEA region next year" due to lower rates, improved views on valuations, and a backlog of transactions needing to be completed. David Solomon, CEO of Goldman Sachs Group, Inc., has also expressed a similar view, noting "remarkable growth in market activity." Anish Shah, Head of Global Capital Markets at Morgan Stanley, said, "The market could see the largest volume of financing market for high-quality single B or BB credit entities, possibly twice the size of what the market has seen this year." He added, "The current market has a very high capacity. For quality assets, we are in an expansion phase. If syndicated loans and private credit investors further integrate, the debt volume will significantly increase. Funds on the market are very abundant."