• Fixed income is far less exposed to AI disruption than equities and faces less concentration risk as a result.  
  
  
• AI‑driven disruption is widening dispersion and creating opportunities at either end of the quality spectrum.
  
  
• Active credit selection is critical as long‑term investment outcomes will depend on fundamentals such as durable cash flows, disciplined capital allocation and structural competitive advantages.

We do expect, however, that over longer periods of time, AI will create winners and losers. That risk is driving dispersion in fixed income markets, both in the lowest-quality segments of the market where software issuers make up a greater concentration of the market, as well as in investment-grade, where hyperscalers are driving a wave of new debt issuance.

Less tech concentration in fixed income

Estimates vary, but some $400 billion in bonds to fund AI-related infrastructure could be issued in publicly traded markets this year. That would tentatively be 10% to 15% of all USD corporate issuance expected in 2026¹. The trend of “reverse-Yankee” issuance, driven by lower funding costs and a push for diversification, has also seen a slight increase in technology in euro investment-grade (IG) markets, though this remains more of a US story. 

Still, tech has reshaped equities far more than it has fixed income, where investors face far less concentration risk.

• In equity markets, technology company stocks made up slightly more than a third of market capitalisation².
  
  
• In fixed income markets, bonds issued by technology companies comprised less than 10% of the US corporate supply by the end of March 2026 and just 3% of the euro IG market. In high-yield, technology made up only 7% of that market³.

Technology dominates in equity market value, much less in fixed income

Source: Bloomberg, as at 30 March 2026.

A revalued tech sector in bonds

AI-driven issuance by hyperscalers -  Amazon, Google, Meta, Microsoft and Oracle - has revalued the entire US investment-grade technology sector. Now bonds issued to technology companies trade with wider spreads than banking, where fundamentals are strong. That’s the opposite of recent trends.

Credit spreads have widened for investment-grade technology bonds (Cumulative change over one year)

Source: Bloomberg data, as at 28 February 2026.

The cumulative spread change is more pronounced for high-yield technology (Cumulative change over one year)

Source: Bloomberg data, as at 28 February 2026.

In US high-yield, AI is challenging both traditional tech and SaaS firms, widening spreads and creating room to choose between potential winners from losers. However, when compared with leveraged loans and private credit, where technology accounts for 15% of supply, the high-yield bond market remains higher in quality and technology issuance is much less concentrated.

High-yield has meant higher credit quality for software and technology issuance among below-investment-grade options

Percentage of below-investment-grade issues for software and technology

Source: Bloomberg, Bank of America and Fitch, as at 31 December 2025.

A need to go deeper

As credit investors, understanding today’s micro matters helps us tackle the issues that will become macro matters in the future.

Some firms will successfully integrate AI to expand margins and strengthen competitive moats. Others may face margin compression, pricing pressure or business model erosion as barriers to entry decline. AI‑driven disruption is widening dispersion - and opportunity.

Credit selection is going to be key to capture the alpha potential within this sector. This is where the ability to leverage deep credit research expertise can thrive – understanding the fundamentals of the issuers to try to identify the winners and losers.

An evolving story

The market is currently focused on the advancement of AI. In the next 18 to 24 months, we see a phase shift coming as investors wonder how AI technology will be efficiently implemented in workflows - and whether there will be the promised return on investment from the current buildout.

For example, we expect AI to lead to transformational innovation in banking, insurance and software, saving on labour and sparking greater profitability.

A holistic approach

In this environment, active credit selection becomes increasingly important. We favour issuers with durable cash flows, disciplined capital allocation and structural competitive advantages. AI is likely to create both opportunity and risk - and differentiation will matter.

At Vanguard, our dedicated telecoms, media and technology credit researchers, along with our portfolio managers, are looking at AI exposure holistically across asset classes, the rating spectrum and industries. This is where our collaborative nature helps identify potential opportunities and helps keep our funds from hidden concentration risks. 

Transformation unfolds over years, not quarters. An approach to active fixed income grounded in disciplined selection across sectors and maturities will be key to delivering long‑term value to your clients. 

¹ Source: Vanguard.

² Source: Bloomberg, as at 31 March 2026.

³ Source: Bloomberg data.