AI disruption: A known unknown leads to a bond pickers market

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AI disruption: A known unknown leads to a bond pickers market

Vanguard Perspective

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March 27, 2026

Accelerating AI-related bond issuance is raising questions about whether fixed income markets are beginning to price in AI-driven disruption, as equities already have.

But we believe fixed income remains far less vulnerable to AI disruption risks and, despite advancing AI models, we do not anticipate a software as a service-apocalypse (aka SaaS-pocalyse) for the bond market.

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 corporate issuance expected in 2026.

That surge will power through the fixed income macrocosm: investment-grade, high-yield, commercial mortgage-backed securities, asset-backed securities, private credit, and leveraged loans.

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 capitalization as of December 31, 2025, Bloomberg data show.
  • In fixed income, bonds issued by technology companies comprised less than 10% of the U.S. corporate supply at the end of 2025, a ratio that had barely budged by late February. In high-yield, technology made up only 8.3% of that market, according to Bloomberg data.

 

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

Horizontal stacked bar chart showing market value composition for three asset classes: S&P 500, high yield bonds, and U.S. investment‑grade corporates. The S&P 500 bar shows technology at 34%, financials at 13%, communications at 11%, and the rest of the market at 42%. The high yield bar shows technology at 8%, financials at 12%, communications at 15%, and the rest of the market at 65%. The U.S. investment‑grade corporates bar shows technology at 10%, financials at 24%, communications at 8%, and the rest of the market at 58%. Overall, equities have a larger share in technology, while fixed income is dominated by the rest‑of‑market category.

Source: Bloomberg, as of December 31, 2025.

A revalued tech sector in bonds

AI-driven issuance by hyperscalers— Amazon, Google, Meta, Microsoft, and Oracle—has revalued the entire 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)

Line chart showing cumulative one year changes in credit spreads for investment grade bonds, measured as spread over comparable U.S. Treasuries in basis points, from February 2025 through January 2026. Three lines represent technology, corporates, and banking. All three rise sharply in early spring, peaking around March, then decline steadily into negative territory by mid year. From late summer onward, technology spreads widen more than the other sectors, rising into positive territory by year end, while corporate and banking spreads remain lower and recover more modestly. Overall, technology shows the largest net widening in credit spreads over the period.

Source: Bloomberg data as of February 28, 2026.

The cumulative spread change is more pronounced for high-yield technology

(Cumulative change over one year)

Line chart showing cumulative one year changes in high yield credit spreads, measured as spread over comparable U.S. Treasuries in basis points, from February 2025 through January 2026. Two lines represent technology and broad high yield corporates. Both rise sharply early in the period, peaking in March, before declining through late spring and summer toward near zero levels. From early fall onward, technology spreads widen significantly, rising steeply into early 2026, while corporate spreads remain relatively flat and end the period near zero. Overall, cumulative spread widening is much more pronounced for high yield technology than for the broader high yield market.

Source: Bloomberg, Bank of America and Fitch, data as of 12/31/2025.

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 most important. Because of AI, we need to go deeper than traditional models suggest. There is alpha to be earned by picking the right sector rotations and issuers within the sectors.

An evolving story

Recently, concerns over whether software companies will be disrupted by new AI developments has led to widespread selling, even areas not touched by AI. As a result, we seized opportunities in unexpected places, such as in bank loans, where distilled spirits and food staple company loans reached bargain levels. AI may be the sexy topic now, but boring can still be beautiful.

The story will evolve more. 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 labor and sparking greater profitability.

A holistic approach

In this environment, active credit selection becomes increasingly important. We favor 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 telecom, 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—and disciplined selection across sectors and maturities will be key to delivering long‑term value to your clients.

Some Vanguard active fixed income funds or ETFs with additional credit exposure:

Multi-Sector Income Bond ETF  

Multi-Sector Income Bond Fund

Ultra-Short Bond ETF

Short Duration Bond ETF

Core-Plus Bond ETF

Core-Plus Bond Fund

 

For more information about Vanguard ETFs, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

All investing is subject to risk, including possible loss of principal.

Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. High-yield bonds generally have medium- and lower-range credit quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit quality ratings.

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