After the IPO, a massive bond issuance has "angered" the market; SpaceX bonds are approaching "junk status," and the speed of their decline has surprised traders.

Following a record-breaking IPO, SpaceX’s massive $25 billion bond issuance has faced a fierce sell-off in the secondary market. The aggressive fundraising pace of the long-term loss-making rocket and AI company has quickly eroded investor confidence, causing its bond spreads to widen significantly and approach speculative—or “junk”—levels. As of Friday, SpaceX’s corporate bonds went from “hot demand” on paper to a full-on plunge within just 48 hours after pricing. The selling pressure across SpaceX’s various maturities has led to a cumulative mark-to-market loss of about $400 million compared to US Treasuries. The narrowing of spreads achieved by underwriters during the subscription phase was wiped out by declines in long-term bonds. According to MarketAxess, SpaceX’s 10-year bond yield rose to nearly 6%, with its spread to US Treasuries widening to over 1.6 percentage points. Its long-end bonds maturing in 2046 and 2056 saw spreads soar to 1.93 and 2.01 percentage points, respectively. Data from Ice Data Services shows that the average spread of BB-rated “junk bonds” is currently priced at 1.67 percentage points, meaning SpaceX—rated Baa1/BBB investment grade—has actual trading prices that are markedly worse than some junk issuers. The severity and speed of the plunge has shocked fixed-income traders. Market participants note there’s barely any precedent for such rapid spread widening in recent mega bond issuances. “Perfect Storm” Hammers Secondary Market Initial book data for SpaceX’s bond sale once obscured underlying risks. According to Bloomberg, the deal initially received subscription orders of nearly $90 billion, almost four times oversubscribed, prompting the issue size to be raised from $20 billion to $25 billion. However, traders revealed the frenzy was driven mostly by fast money seeking short-term arbitrage, not traditional buy-and-hold investors. As these funds rushed to exit and take profits in the secondary market, the selling pressure intensified. Impax Asset Management portfolio manager Tony Trzcinka said the market had expected SpaceX’s spread to widen, but the current magnitude amounts to a “perfect storm.” He pointed out this is due to the company’s massive market cap shrinkage since the IPO, technical selling from expanded issuance, and investor confusion over how to price its unique risk profile. By comparison, NVIDIA’s recent $25 billion bond issuance saw its long-end spread widen by just 11–12 basis points, while Alphabet’s long-end bonds even saw spread compression. Additionally, SpaceX’s credit default swaps (CDS) also widened sharply after trading began, further confirming the defensive posture of the market toward its credit risk. Cash Flow and Governance Risks Raise Direct Concerns Stock and bond investors use fundamentally different logic to assess SpaceX. Earlier this month, the company raised $86 billion via IPO, with its valuation at one point approaching $3 trillion before falling back to $2 trillion—mainly on expectations its AI revenues will surge in the future. However, for creditors, the core fact is that SpaceX, while achieving $18.7 billion in revenue in 2025, posted a net loss of $4.9 billion. PGIM portfolio manager Michael Campion said: In the investment-grade bond market, we care about a company’s ability to repay debt. We’re used to lending based on actual cash flow rather than expectations. Allianz Chief Investment Officer Ludovic Subran bluntly stated: Bond investors are different from stock investors. Stock investors may go with you to Mars, but bond investors only ask ‘Where is my coupon?’ Additionally, extreme reliance on Elon Musk’s personal leadership has become a core concern for ratings agencies and investors. Fitch Ratings considers this a “key rating constraint.” London Business School professor James Dow observed that SpaceX is highly dependent on Musk with no succession plan and unusually weak corporate governance, making its long-term debt much less attractive. Tech Giants’ Bond Boom Nears “Bubble” Threshold SpaceX’s cold reception is not an isolated incident but exposes systemic risks in the current tech giant debt surge. As tech firms compete to raise huge sums for AI projects, investors are facing a flood of bond supply. According to Morgan Stanley, AI-related debt issuance has reached $236 billion so far this year, up 357% year-over-year, and is projected to double to $570 billion by year-end. The borrowing frenzy is rapidly pushing up industry leverage: data shows that mega tech firms’ total leverage has doubled in just over two quarters—from 0.9x to 1.8x—now surpassing that of the entire energy sector. The huge supply is overwhelming market structure. Bloomberg calculations show US investment-grade bond supply for June reached $180 billion as of Wednesday, a historic high. Oversupply is starting to drag on broader credit spreads. Morgan Stanley notes that mega issuers’ spreads are widening across the board, with Oracle and Meta’s bonds confirming this trend. RBC BlueBay’s Chief Fixed Income Investment Officer Mark Dowding wrote in a report: bondholders clearly conclude that as this loss-making company raises funds for its future road to profitability, more debt issuances may lie ahead. Analysis suggests if this pace of debt expansion continues, credit spreads will eventually explode further, materially constraining tech companies’ capex cycle. 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