Company Interview / The debt deluge behind the AI boom

Key points:

Federal Reserve messaging viewed as inconsistent with its 2% inflation targetAI hyperscaler CapEx driving heavy long‑dated bond issuance from Alphabet, Microsoft, Meta and OracleInvestment-grade tech credit spreads near 200 bps seen as an attractive entry pointAustralian bond market offering 6% short‑dated carry plus idiosyncratic opportunities such as ClearView (ASX:CVW)

Roni Green from GF Asset Management views the latest Federal Reserve decision as a setback for its inflation-fighting credentials. Green states that the governor’s July messaging appears inconsistent with earlier commitments to a strict 2% inflation target, and argues this has seen the bond curve steepen, with long-dated yields rising as markets question long‑term inflation resolve.

Green highlights the enormous AI-driven capital expenditure by hyperscalers such as Alphabet ($GOOGL), Microsoft ($MSFT), Meta ($META) and Oracle ($ORCL), funded heavily through long-dated bonds. In Green’s view, this wave of 10–50 year issuance, combined with large US Treasury deficits, creates a “supply deluge” in credit markets. Green notes investment-grade spreads for these issuers are approaching 200 basis points, a level viewed as historically compelling, and is starting to scale into selected investment-grade names as AI exuberance cools and credit underperforms broader indices.

Turning to Australia, Green sees a slowing domestic economy but notes local yields have largely tracked global moves. Green prefers a conservative stance, focusing on short-dated, high‑quality bonds yielding around 6%, while targeting idiosyncratic opportunities. Green cites ClearView (ASX:CVW), being taken over by Zurich, as an example of a credit transitioning from high yield towards a potential single‑A profile. Green also points to sustained Asian demand for Australian dollar credit as investors diversify away from US dollar exposure.