Record supply meets disciplined buyers

US investment grade (IG) borrowers printed close to $150bn in August, surpassing the $136bn record set in August 2020 and making this the third consecutive month to set an all-time high after June and July. Against a seasonal average of roughly $95bn since 2019, that is about 50% above the norm despite the August holiday season being in full swing. Year-to-date (YTD) volume sits near $1.49tr, up 37% on the same point last year, and BofA now has full-year gross supply reaching a record $2.1tr with net issuance of $750bn, 43% above 2025[1]. Artificial intelligence (AI) capital expenditure is doing most of the work. An estimated $350bn of AI-related corporate debt has priced this year, close to $200bn of it from the six hyperscalers alone, roughly what that group raised across the previous four years combined. Tech and AI borrowers account for about 19% of YTD IG supply but 38% of everything beyond ten years, a concentration now cited among the technicals weighing on the long end of the Treasury curve.

Some of the August rush looks like front-running a busy September. Borrowers who could comfortably have waited three weeks took a thin, half-staffed market over a September calendar the street was already pencilling in at $175-250bn of supply. The first week of September is normally one of the busiest of the year, and the hyperscaler supply technical is already weighing on the long end before it starts. What has kept things orderly this year is that issuance has been well absorbed, with new issue premiums running between 4-8 basis points (bp) for most of the year as investors continue to be attracted to the all -in yield levels while spreads remain near historic tights.

Alphabet's $25bn deal at the start of the month shows how far hyperscaler spreads have moved. The deal was a 10-tranche offering with maturities ranging between two and 40 years, receiving roughly $115bn of peak demand - the third-largest AI order book this year behind Oracle’s February and Amazon’s March bonds, despite the $20bn the company already raised in February alongside €9bn, £5.5bn, C$8.5bn and A$5.5bn. Initial price thoughts (IPTs) on the 40-year opened at T+155bp before tightening by 25bp to price at T+130bp, despite previously pricing at T+95bp back in February at a similar point on the curve. This 35bp widening comes while index spreads are broadly unchanged. As a result, the technical overhang now has AA credits trading close to BBB levels.

European supply has tracked last year closely, with YTD issuance up 1% to €550bn and limited hyperscaler and AI funding in euros compared with the dollar market.

In European markets, corporate hybrids have been one of the more interesting sectors. The subordinated paper from non-financials that carries 50% equity credit at the rating agencies. Investors have grown more comfortable with the asset class as call discipline has held, with issuers outside the real estate investment trust (REIT) sector consistently redeeming at the first call date, and investors attracted to the 95bp pick up over senior spreads.

Debut issuers have been the incremental driver of hybrid supply this year. TenneT, Sika, Swisscom, Carlsberg and Deutsche Börse have all come to the hybrid market for the first time in 2026, three of them inside a fortnight in August. Supply has reached roughly €40bn already and the full year looks set for €50-55bn, comfortably a record. Despite the high levels of supply, demand has remained strong; average book coverage on non-financial hybrids is 4.6x year to date against 4.3x in 2025, now ahead of the 4.2x averaged by additional tier 1s (AT1s) – further reflecting investor comfort with the product.

Tuesday's deal from TenneT Germany, a pure-play regulated transmission monopoly with a €40.3bn regulated asset base (RAB) rated BBB+, highlights both the strength of demand and where investors are demanding the right price level. IPTs of 4.875% on the 30.25NC5.25 and 5.375% on the 30.5NC8.5 drew €6.7bn and €7.3bn of orders against a €2.6bn deal, indicative of strong demand at this price level. Fair value plus a modest debut concession sat at 4.5-4.6% and 4.9-5.0%. Final pricing came at 4.375% and 4.80%, inside both our estimate and the markets, and demand fell noticeably. Combined orders were reduced to €6.75bn, €2.5bn on the short tranche and €4.25bn on the long, with attrition of over 60% on the NC5.25, the largest we've seen in some time and well above the 22% YTD average. The sub/senior pickup finished near 70bp and 80bp against sector averages closer to 75bp and 90bp, evidently not enough to offset the subordination and call risk.

TenneT's treasury and syndicate desks appear to have overplayed their hand, prioritising price over book quality, and the bonds traded lower on the break. It's a costly way to save a few basis points for an issuer with TenneT's funding program ahead of it: roughly €8bn of hybrids and €35bn of senior between 2026 and 2030 to fund around €13bn of annual capex. With TenneT’s significant funding requirements, it will likely be back to the market soon, in front of many of the same accounts, and this experience may factor into the investor demand.

Its senior debut on 7 July showed the alternative, €3.5bn, with a book 6x oversubscribed, though its senior debt benefits from an index-buyer base that is less price sensitive than the hybrid investor base.

In contrast to IG, European high yield (HY) credit saw a very quiet August, as German shopping channel HSE Investment brought a lone €400m deal, although YTD gross supply is nonetheless roughly tracking 2025’s pace. Q4 will be a different story, however, with expectations of a significant uptick in issuance, heavily skewed towards new supply.

Despite the high levels of new supply on the cards, we expect markets to absorb issuance well. IG investors have already absorbed heavy supply, particularly from AI-related borrowers, while HY investors will be poised to take advantage of new investment opportunities after a comparatively quiet summer and ten consecutive weeks of inflows. With all-in yields still attractive but spreads tight, pricing discipline will nonetheless remain vital in a competitive primary market.

[1] Source: Flanagan, C., & Fung, A. (2026, August 14). The Fixed Income Digest: Rates up, risk on. BofA Global Research.