Rising Rates Slow Data Center Financing, Morgan Stanley Says
Morgan Stanley says higher borrowing costs are slowing securitized data center financing, though it expects $120–150 billion of supply over the next couple of years.
The story in focus
Morgan Stanley strategist Carolyn Campbell says rising borrowing costs are slowing securitized financing for AI data centers, with top-rated data center bond yields near 7%. The firm expects roughly $120–150 billion of issuance over the next couple of years and sees the supply slowdown as temporary.
- Five-year Treasury rates have climbed more than one percentage point since January, per Morgan Stanley.
- The firm forecast U.S. data center power capacity growing to 150 gigawatts by 2028 from about 60 today.
- Morgan Stanley lowered its 2026 and 2027 securitized issuance forecasts but held 2028 steady.
Yields climb as leases lock in rents
Morgan Stanley asset-backed securities strategist Carolyn Campbell said in an October 16 podcast that demand for data center capacity is booming while financing costs rise. Since January, five-year Treasury rates have climbed more than one percentage point, and spreads on data center assets have widened. Bonds that yielded below 5% at the start of 2026 now yield closer to 7%.
Operators often raise money by securitizing rental income after construction is finished and power secured. Because long-term leases are typically signed before financing is sought, rental income is locked in while borrowing costs rise. Morgan Stanley's analysis suggests issuance becomes significantly harder as costs approach 8%.
Issuance trails demand, forecast trims
Data center operators have issued about $15 billion in ABS and $7 billion in CMBS so far in 2026, roughly matching last year's pace but below what Morgan Stanley would expect given demand growth. The firm calls the supply slowdown temporary and lowered its 2026 and 2027 issuance forecasts while holding 2028 steady, expecting $120–150 billion of supply over the next couple of years.
Morgan Stanley forecasts U.S. data center power capacity could grow from about 60 gigawatts today to 150 gigawatts by 2028, though power constraints could leave capacity 30–40% below projections. It said operators could borrow less, accept lower near-term returns or use more flexible credit channels, and it favors colocation campuses with shorter leases and diverse tenants.
What could slow the AI data center build-out?
Higher borrowing costs, according to Morgan Stanley. Five-year Treasury rates rose over a percentage point since January and data center bond yields approached 7%, which the firm says makes securitized issuance harder.
Sources & further reading
- AI Boom Faces a Higher-Yield Roadblock | Morgan Stanley ↗morganstanley.com
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