Alphabet's centennial bond falls below 90% of face value for the first time, mega cloud service providers' bond credit spreads widen
On Thursday, Alphabet, Google's parent company, saw the price of its previously issued 100-year sterling bond fall below 90 pence for the first time this year. The bond’s credit spread over the risk-free benchmark rate widened to 139.8 basis points at one point, reaching a historic high. The company is facing dual pressures: massive AI capital expenditures that may require further debt financing, and rising UK government bond yields driven by heightened inflation concerns and a widening fiscal deficit.
Earlier this year, as Google parent company Alphabet ramped up fundraising efforts in global markets, the price of a 100-year sterling bond issued by the company fell below 90 pence for the first time, meaning each £1 face value was worth less than 90 pence.
According to Bloomberg data, the £1 billion (approximately $1.34 billion) bond due in 2126 was quoted at 89.978 pence on Thursday.
In February this year, Alphabet completed the sterling bond issuance by splitting it into five tranches. That day, the bond's credit spread relative to the risk-free benchmark rate once widened to 139.8 basis points, reaching a historical high.
This bond is currently the longest outstanding maturity among all benchmark-size senior corporate bonds in the world, and its price is under pressure from two main factors:
On one hand, the market is concerned that AI-related investments will prompt tech giants to further increase debt financing; on the other hand, government bond yields have generally risen again due to widening fiscal deficits and renewed inflation worries.
Due to the bond's extremely long modified duration, it is highly sensitive to interest rate changes. For every 1 percentage point increase in yield, the bond's price could theoretically drop by about 15 pence.
Meanwhile, UniCredit credit strategist Michael Teig said in a report on Thursday:
"The recent widening of credit spreads for ultra-large cloud computing corporates has once again triggered investor debate over the sustainability of their business models, especially in light of their substantial capital expenditures."
On Thursday, the long-term bonds issued by Alphabet and another ultra-large cloud computing company, Amazon, became some of the worst performers in the European investment-grade bond market.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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