Bond Spreads Rise to 0.78 Percentage Points
Surpassing Levels Seen During Trump Tariff Turmoil
Oracle's Corporate Bonds Hit Hard
Credit concerns are mounting over corporate bonds issued by major U.S. technology companies to finance the construction of data centers. Analysts say that anxiety over the artificial intelligence (AI) investment boom in Silicon Valley is now spreading to the bond market.
The construction site of the AI infrastructure for "Project Stargate," jointly promoted by the three major technology companies OpenAI, SoftBank, and Oracle. Photo by Reuters Yonhap News
On November 11 (local time), the Financial Times (FT), citing data from Bank of America (BofA), reported that the bond spreads (the additional yield over government bonds) of "hyperscalers"-large cloud companies such as Google, Microsoft, and Oracle engaged in large-scale data center construction-have widened significantly in recent weeks. According to BofA, the spread for these bonds has risen to 0.78 percentage points, the highest level since the market turbulence triggered by President Donald Trump's announcement of tariff plans in April. This marks a clear increase compared to September, when the spread stood at 0.5 percentage points.
FT analyzed that this widening of spreads reflects growing investor unease as technology companies become increasingly reliant on the bond market.
Bridge Khurana, a fixed income portfolio manager at Wellington Management, told FT in an interview, "What the market has realized over the past two weeks is that even big tech companies, despite holding massive cash reserves, are feeling enough financial pressure from AI infrastructure investments that they are turning to the bond market for funding."
In reality, Meta has issued $57 billion in corporate bonds, while Alphabet and Oracle have each issued bonds worth $25 billion and $18 billion, respectively. Google, Amazon, Microsoft, and Meta plan to invest a combined total of more than $350 billion in data centers this year alone, and are expected to inject an additional $400 billion or more next year.
In a recent report, JP Morgan projected that building out AI infrastructure will require more than $5 trillion in funding, and that not only public capital markets but also private credit, alternative capital, and even government participation may be needed. In fact, last month Meta entered into a $27 billion private bond deal with investors such as PIMCO and Blue Owl Capital to secure funding for the development of the Louisiana Hyperion Data Center.
Despite holding significant cash reserves, these companies are aggressively raising funds through bond issuance to secure and expand their positions in the AI market. In fact, in recent weeks, Meta, Alphabet, and Oracle have all issued ultra-long-term bond packages with maturities of up to 40 years.
Experts have pointed out that Oracle's corporate bonds have been particularly hard-hit in recent months. Oracle issued $18 billion in corporate bonds to finance the construction of data centers that will be leased to OpenAI. However, according to an index calculated by FT that tracks Oracle bonds traded over time, the index has fallen by about 5% since mid-September. This is a much steeper decline than the 1% drop in the ICE Data Services index, which tracks high-quality U.S. technology company bonds.
This suggests a widening gap between Oracle's confident outlook for future growth and the credit risks perceived by investors. Oracle has previously stated that it expects to generate $300 billion in revenue over the next five years through AI infrastructure leasing contracts.
Credit rating agency Moody's has warned of credit risks, noting that Oracle is excessively dependent on a small number of AI companies for its funding. As major technology companies, including Oracle, simultaneously embark on large-scale AI infrastructure investments, concerns are also rising over excess capacity, long-term profitability, and surging energy demand.
Some analysts view the decline in hyperscaler bond prices following these large-scale issuances as a healthy correction. George Pearce, a macro strategist at Bespoke Investment Group, said, "If additional risk factors are being priced into the market, that's actually a healthy sign. What would concern me is if bond prices were rising despite increased supply. The current selling pressure is a normal correction."
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