At first glance, the investment grade (IG) corporate bond market appears to be undergoing a shift. Large technology companies now feature more prominently among the top issuers than they did just a few years ago, prompting questions about whether tech risk is spilling over from the equity market and quietly becoming embedded in what many still regard as a defensive allocation. Look beyond the surface, however, and a more nuanced picture emerges.
While the identity of the largest IG issuers has evolved, the structure of the market has not changed nearly as much as headlines suggest. Technology still represents only around 6.5% of the US investment grade universe, a figure that has risen by just a fraction of a percentage point over recent years. In other words, tech has become more visible – but not materially more dominant – at the index level.
Where the story becomes more interesting is not in sector concentration, but in sector behaviour.
For much of the past decade, large technology issuers were treated by credit investors as something close to ‘cash-plus’. Strong balance sheets, substantial net cash positions and conservative funding models meant that exposure to tech in IG portfolios was widely viewed as low-risk and largely unproblematic. That assumption is now being tested.
The acceleration of AI-related capital expenditure marks a clear inflection point. Increasingly, large technology firms – a recent example being Oracle – are choosing to fund speculative or semi-speculative investment through debt markets rather than relying solely on equity issuance or internal cash flows. From a credit perspective, this represents a meaningful change. Debt-funded capex introduces greater execution risk, raises leverage, and increases the likelihood of rating pressure over time, particularly in a sector where the eventual winners and losers of the AI investment cycle are still far from clear.
Recent spread volatility in individual tech names underlines this shift. Issuers long considered among the safest credits in the market have experienced abrupt repricing as investors reassess capital structure discipline and future cash flow resilience. That kind of move would have been difficult to imagine when tech was seen as a stable anchor within IG portfolios.
Crucially, this evolution does not mean that technology is becoming a systemic risk within IG. Banks, utilities, healthcare, and insurers remain far larger components of the index, and even a significant increase in tech issuance would not change that hierarchy. But it does mean that credit risk within the sector is becoming more dispersed.
For investors, the implication is subtle but important. Many already carry substantial technology exposure through their equity allocations. As tech issuance grows and funding models evolve, there is a greater risk of inadvertently replicating that exposure within fixed income – not through headline sector weights, but through issuer-level concentration and changing credit fundamentals.
This is where the distinction between passive and active management becomes increasingly relevant. Passive strategies must absorb issuance in line with the index, regardless of whether balance sheet dynamics are improving or deteriorating. Active credit managers, by contrast, can differentiate between companies using debt conservatively and those stretching capital structures in pursuit of growth.
In today’s environment, the question for IG investors is therefore not whether technology has become ‘too big’ in the index. It is whether they are sufficiently equipped to navigate a sector that is behaving in a more cyclical, capital-intensive and credit-sensitive way than it has in the past.
The shift may be incremental, but for credit portfolios built around risk control and diversification, behaviour matters at least as much as weight.
