Technology’s silent takeover of index risk

Technology is taking over a much larger share of bond-index credit risk than its market-value weight suggests.

• Technology’s share of the Bloomberg US Aggregate Bond Index rose from 2.24% in 2019 to 3.17% today after Amazon, Meta and SpaceX were reclassified as technology issuers.
• The sector’s longer-duration debt and wider-than-average spreads make its contribution to spread risk disproportionately large.
• Technology’s share of the index’s option-adjusted spread risk increased from 4.17% to 10.31%.
• Growing AI investment and hyperscaler spending are increasing technology-related issuance as companies finance data centers and digital infrastructure.
• Some data-center financing sits outside traditional indexes, including in 144A structures that may offer better compensation than unsecured corporate bonds for comparable risks.

Takeaway: Passive investors are becoming more dependent on technology-sector credit performance, while active managers may find relative-value opportunities by selecting exposures across indexed and non-indexed markets.