This is a sponsored advertorial from L&G.

Authors: 

• Matthew Rees – Head of Global Unconstrained Fixed Income, Asset Management, L&G
• Tom Farrington – Fixed Income Investment Specialist, Global Unconstrained Bond Strategies, Asset Management, L&G 
• Joshua Goodey – Assistant Portfolio Manager, Global Bond Strategies (Unconstrained & Benchmark), Asset Management, L&G

A substantial proportion of today’s global fixed income market is shaped by investors who follow strict, rule-based frameworks. This includes some passive investors who replicate index performance without deviation, certain pension funds whose primary focus is liability matching rather than yield or spread considerations, and benchmark-aware investors who, despite adopting active strategies, may still be restricted by their funds’ mandates and guidelines.

However, an ‘unconstrained’ approach can allow investors to act differently. Rather than anchoring portfolios to an index, we use an asset allocation approach which focuses on relative value across issuers, geographies, currencies and capital structures. An unconstrained strategy can capture potential opportunities and mitigate risks across the diverse fixed income spectrum. 

Global diversification and flexibility are central to this philosophy, enabling us to respond dynamically to changing market environments.

A reshaping of credit markets

The surge in AI‑related capital expenditure provides a powerful example of why this flexibility matters.

Hyperscalers are committing unprecedented sums to data centres, power infrastructure and chips, increasingly funding this investment through public bond markets. Even those with the strongest balance sheets are now issuing at scale, fundamentally reshaping investment‑grade credit markets.

For example, Alphabet’s rare 100-year sterling bond issue¹ means that the issuer will now account for 1-3% of key UK investment grade (IG) benchmarks. 

If only 25% of the expected AI-related capital expenditure is issued in IG public credit markets, the combined weighting of the five major hyperscalers (Alphabet, Apple*, Amazon*, Microsoft* and Meta*) in the global IG index would increase from 2% to around 7% by 2030.² More widely, technology stocks could account for over 20% of the US IG market by this time,³ which we believe poses a significant increase in concentration risk, albeit not at equity levels.

What challenges does this present?

So far, the hyperscaler supply has been absorbed without any notable problems, and at least partly for good reason. Alphabet and Meta both paid a clear ‘new issue premium’ of 10 to 15 basis points to access the debt market, compared to previous issues.

Nonetheless, a growing share of this demand for hyperscaler issuance will likely be for necessity rather than preference. When new bonds are incorporated into market indices, investors who track these benchmarks or must manage tracking error constraints are incentivised to acquire them – frequently during month-end rebalancing periods – regardless of their valuation.

Institutional bond investors, such as pension funds, insurers, and mutual funds, typically impose restrictions on sector or issuer exposures to maintain portfolio diversification. However, mandate concentration restrictions typically focus on individual issuers and sectors rather than broader themes and, therefore, may not safeguard investors against a widespread decline in AI sentiment. 

Consequently, the index may be disproportionately weighted towards companies with future earnings tied to AI themes, creating latent risks that may not be immediately apparent.

Doing things differently: The unconstrained approach

L&G’s unconstrained approach allows us to respond very differently to these dynamics.

We believe an unconstrained approach, coupled with thematic analysis by our Global Research & Engagement Groups (GREGs), is best placed to manage concentration risks that become too reductionist when considered only through a sectoral or issuer lens. 

Rather than automatically absorbing new supply, we can be selective: participating where we believe compensation is attractive and stepping aside where valuations become stretched, all while maintaining diversification. 

While hyperscalers have offered new-issue concessions to attract borrowers, an interesting dynamic we have witnessed is the impact on existing hyperscaler bonds and credit markets in general. If high-quality AI issuers continue offering attractive yields, it could reset valuations across the corporate bond market, prompting investors to sell lower-quality credits to make room for new tech bonds.

As unconstrained investors, we are not compelled to engage in primary market issuance. We recognise opportunities to trade strategically around issuance trends, both among hyperscaler issuers and by reallocating capital into overlooked areas of the market that are temporarily crowded out by headline issuance.

In summary, we believe a flexible, unconstrained approach is paramount as credit markets are reshaped by the AI theme, which will no doubt create winners and losers. Robust unconstrained strategies can distinguish between these two to selectively own stronger credits and take advantage of constrained investors with less freedom to avoid crowded trades. 

Learn more about L&G’s unconstrained bond strategies here.

 

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* For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. The above information does not constitute a recommendation to buy or sell any security.

¹ Source: Bloomberg, as at 10 February 2026.

² Source: L&G, Bloomberg, as at 31 March 2026.

³ Source: L&G, Bloomberg, as at 31 March 2026.

Key risk warnings

The value of investments and the income from them can go down as well as up and you may not get back the amount invested. Past performance is not a guide to future performance. The details contained here are for information purposes only and do not constitute investment advice or a recommendation or offer to buy or sell any security. The information above is provided on a general basis and does not take into account any individual investor’s circumstances. Any views expressed are those of L&G as at the date of publication. Not for distribution to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation.

Issued by:

Hong Kong: Legal & General Investment Management Asia Limited, a Licensed Corporation (CE Number: BBB488) regulated by the Hong Kong Securities and Futures Commission (“SFC”). This material has not been reviewed by the SFC.

Singapore: LGIM Singapore Pte. Ltd (Company Registration No. 202231876W), regulated by the Monetary Authority of Singapore (“MAS”). This material has not been reviewed by the MAS.

 

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More about our authors 

Matthew joined L&G in 2009 and is currently the Head of Global Unconstrained Fixed Income for L&G’s Asset Management division. He has led the Global Bond Strategies team since 2019 and was co-head of the Euro credit portfolio management team prior to this role. Previously, Matthew was a Partner at Banquo Credit Management (a multibillion-euro absolute return investment manager) and has worked at UBS, Merrill Lynch and the rating agency Fitch IBCA. Matthew qualified as a chartered accountant with Coopers & Lybrand in 1996 and holds a BA (hons) in English from the University of York.

Tom joined L&G in 2022, and is the lead Investment Specialist covering Global Unconstrained Bond Strategies. Over his time in L&G, he has worked across both distribution and investment teams. Prior to joining L&G, Tom was in the Capital Markets division at the Bank of England. He holds a BSc Economics from Loughborough University.

Joshua joined L&G’s Global Bond Strategies desk in 2024 as an Assistant Portfolio Manager covering Global Unconstrained and Benchmark strategies. He graduated from the University of Bath with a BSc Economics degree in 2021.

This is a sponsored advertorial from L&G.