MORNING BID EUROPE-Sovereign bonds shouldered aside as AI takes their turf

A look at the day ahead in European and global markets from Wayne Cole Sovereign ​borrowers are no longer the big boys on the block as ​AI giants increasingly invade their turf. The Wall ‌Street Journal ​reports Broadcom is lining up $50 billion of financing to buy gear from OpenAI, with Oracle also seeking an unspecified sum.

Sources say SpaceX alone is looking to issue $30 billion in investment-grade debt, along with a cool $10 ‌billion in bank loans, to buy chips from Nvidia. This is the same SpaceX that raised a record $86 billion in its June IPO and then immediately sold $25 billion in bonds. Nvidia also happens to hold a stake worth around $21 billion in the Elon Musk venture.

Some analysts saw this as a wise move by ‌Musk as it could help SpaceX steal a march in the AI arms race, which is all about who gets to scale first. ‌Using debt also means not having to go back to the equity market and diluting stock. Others worried about the circular nature of all this business, with the chipmakers helping fund the buyers of their own products. Investors also seemed to have qualms about turning equity risk into credit risk, as SpaceX's five-year CDS spread widened almost 15 basis points to a ⁠record.

That hyperscalers ​are bold enough to raise such ⁠momentous sums should be music to the ears of companies that make all this data-centre gear. Samsung today projected a nearly nine-fold increase in operating profit to $80 billion, though its shares ⁠still slipped 1.3%. Whatever the business merits, all this corporate borrowing is a real headache for governments that need to fund persistent budget deficits and increased defence spending in ​a more uncertain world. All as ageing populations demand more healthcare and pension payments, while shrinking the tax base.

Problems France knows all too ⁠well. It's never a good sign when your central bank governor has to reassure investors the country does not need help from that big bank in Frankfurt. The prospect of increasing ⁠competition ​from corporate borrowers saw yields on 10-year Treasuries edge back up to 5.31% in Asia. Yields had fallen from a top of 5.3645% overnight when the latest note auction drew so much demand the Street was left holding hardly any of the paper.

Now, it's time for the 30-year to ⁠step into the limelight and see if yields around 5.70% can draw the same sort of bids. Key developments that could influence markets on ⁠Thursday:

- German trade balance for August - ⁠Fed speakers include Governor Christopher Waller, Fed Bank of Minneapolis President Neel Kashkari and Fed Bank of St. Louis President Alberto Musalem

- Various appearances by SNB Vice President Antoine Martin, BoE Chief Economist Huw Pill, BoE policymaker ‌Clare Lombardelli, ECB chief economist ‌Philip Lane, Norges Bank Governor Ida Wolden Bache, Riksbank Governor Erik Thedéen (By ​Wayne Cole; Editing by Sonali Paul)