Tech Bonds Are 'Diamonds in the Rough': Bank of America's Hartnett Says
Key takeaways
- Tech bonds are now offering attractive yields as AI companies shift from buybacks to debt and equity financing, but credit spreads remain wide and the market is still wary.
- Tech bonds fell 9% in 2026
- $182 billion of bonds issued in 2026
- $17 billion in 2024
What happened
Bank of America’s chief investment strategist Michael Hartnett says U.S. technology bonds are now cheap, having fallen about 9% in 2026 and lagging the broad investment‑grade index for the first time in 30 years. He points to a surge in bond supply from AI hyperscalers—$182 billion issued this year versus $17 billion in 2024—driving yields up to 6‑8% on long‑dated debt from the Magnificent Seven. Hartnett also notes a shift in capital flows: hyperscalers have raised $89 billion through equity…
Why it matters
The steep rise in bond supply and the move away from buybacks mean investors can now earn higher yields on tech debt, while credit markets remain cautious as five‑year credit default swaps for big tech have widened sharply. The shift signals that bond markets are policing the AI boom, and that the era of large stock…
Short-term and longer-term
Short-term. In the next few days, watch the Magnificent Seven Exchange-traded fund — a basket of stocks or bonds you can buy like a single share.ETF
Longer-term. Over the coming months, the shift toward equity financing and higher bond yields could improve the long‑term valuation of tech debt, but the projected negative free cash flow by 2027 and persistent credit spreads…
Words on this card
- Credit default swap (CDS)
- A financial contract that pays the holder if a borrower defaults
- Yield
- The annual return earned on a bond
- Capital expenditure (capex)
- Money spent on buying or upgrading physical assets
- Free cash flow
- Cash a company generates after covering operating expenses and capital spending
- Buyback Learn
- Repurchasing a company’s own shares