How the AI Bond Boom Could Raise Borrowing Costs for European Governments and Firms

France's interest bill is on course to climb from €79 billion now to €91 billion next year, and past €100 billion by 2028. The country carries public debt equal to 119% of GDP and a deficit still above 5%. Over the past six months, the yield on its 10-year bonds has risen from roughly 3.7% to nearly 5%. Into that strained picture has come a new competitor for the same pool of investor money: American technology companies building out artificial intelligence.

More than $1 trillion (€900 billion) is going into the AI buildout, and a growing share of it is borrowed. According to a tally of filings with US financial regulators by AI Industry Reviews, an independent platform that evaluates AI tools, four of the Big Five hyperscalers have issued about $250 billion in dollar bonds since the start of 2025. Those four are Amazon, Alphabet (Google's owner), Meta and Oracle. They have also sold a further €37 billion ($41 billion) in euros. Microsoft, the last of the five to hold back, recently joined in with a $25 billion bond sale, all in dollars.

The pace is set to continue. Goldman Sachs projects that new hyperscaler bond sales will reach $420 billion next year, and Dutch bank ING expects about €60 billion of that to be issued in euros.

That is unwelcome news for governments such as France, Germany and Italy, whose sovereign yields have risen sharply in recent months. In August, economists at the European Central Bank wrote in a blog post that the euro bond market was adapting well to the AI giants. They also warned that the borrowers "could make it harder for other companies and other economic sectors to access finance." They questioned whether European markets can smoothly absorb such large, concentrated debt inflows, and flagged a potential spillover to the sovereign and supranational segment. That would mean higher costs for governments and for lenders such as the European Union and the European Investment Bank.

Viktor Hjort, global head of credit strategy at BNP Paribas, calls the phenomenon "bond abundance." He told DW that the hyperscalers' presence in the euro market is already large enough to create competition within the corporate sector, and between corporates and governments, for available fixed-income funds, meaning investment funds that mostly buy bonds. Last month, he said, bond yields jumped again, driven by rebounding energy prices tied to the Iran war and by France's political crisis. Government and company borrowing costs rose together. Normally, nervous investors move into government bonds, pushing those yields down, so the simultaneous rise points to that competition for capital.

Companies are feeling it too. Goldman Sachs warned last week that rising interest costs are hurting earnings at European firms. Among companies in the Stoxx 600 index, interest costs as a share of sales have risen by nearly half since 2022, and the bank's analysts say this has cut earnings by more than 5% over the same period. Add competition from AI bonds, and firms could come under pressure to trim investment in plants, equipment and research, as well as shareholder payouts, to prioritize repaying debt.

Cities and regions, whose borrowing funds schools, transport and infrastructure, may also be affected. A study for the OECD published in January compared local bond markets in Belgium, Germany, Spain, Sweden and Canada. Where AI was spreading fastest, measured by the share of AI-related job vacancies, borrowing costs for cities and regions tended to rise. Co-author Christos Makridis of Arizona State University's W. P. Carey School of Business told DW that his research shows AI investment linked to lower municipal borrowing costs in the United States, while "the opposite appears to hold in several European countries."

AI bonds are far from the only cause of Europe's widening fiscal strain. But with billions more planned next year, Big Tech's appetite for capital could add to it. On these figures, France's Finance Ministry needs to find tens of billions in cuts, tax increases or extra borrowing by the end of the decade. European taxpayers may end up paying more on their own governments' debt, partly to help finance an AI boom across the Atlantic.