Alphabet’s century bond falls below 90% of face value for the first time; credit spreads widen for mega-scale cloud service provider bonds

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Earlier this year, as Google’s parent company Alphabet undertook large-scale fundraising in global markets, the price of a 100-year bond it issued in the pound sterling market 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 (about $1.34 billion) bond, maturing in 2126, was quoted at 89.978 pence on Thursday.

In February this year, Alphabet completed this pound bond issuance by splitting it into five tranches. On the day of issuance, the credit spread of this bond over the risk-free benchmark rate once widened to 139.8 basis points, hitting a historical high.

This bond currently has the longest remaining maturity among all benchmark-sized senior corporate bonds globally, and its price is under pressure from two aspects:

On one hand, the market is concerned that investments related to artificial intelligence will prompt tech giants to further increase debt financing; on the other hand, government bond yields have generally risen again due to expanded fiscal deficits and renewed inflation concerns.

Because this bond has an extremely long modified duration, it is highly sensitive to interest rate changes. For every 1 percentage point rise in yield, the price of the bond could theoretically drop by about 15 pence.

Meanwhile, on Thursday, UniCredit credit strategist Michael Teig stated in a report:

"The recent widening of credit spreads of ultra-large cloud computing corporate bonds has again triggered investor discussions about the sustainability of their business models, especially in the context of their sizable capital expenditures."

On Thursday, long-term bonds issued by Alphabet and another ultra-large cloud computing enterprise, Amazon, became some of the worst-performing varieties in Europe's investment-grade bond market.

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