After its IPO, massive bond issuance "angered" the market, with SpaceX bonds approaching "junk status," and the speed of their decline surprised traders.

Following its record-breaking IPO, SpaceX's massive $25 billion bond issuance faced a fierce sell-off in the secondary market. The aggressive fundraising pace of this long-profitable rocket and AI company quickly backfired on investor confidence, causing its bond spreads to widen sharply, approaching speculative-grade (i.e., "junk") levels.

As of Friday, within just 48 hours of pricing, SpaceX's corporate bonds went from "sizzling demand" on paper to an all-out crash.

Selling pressure on SpaceX bonds across all maturities resulted in cumulative paper losses of approximately $400 million compared to U.S. Treasuries, completely erasing the spread narrowing gains underwriters had achieved during the subscription phase due to the decline in long-dated bonds.

According to MarketAxess data, SpaceX's 10-year bond yield rose to nearly 6%, with the spread over U.S. Treasuries widening to more than 1.6 percentage points. The spreads on its long-dated bonds maturing in 2046 and 2056 surged to 1.93 and 2.01 percentage points, respectively.

According to Ice Data Services, the average spread on BB-rated "junk bonds" is currently priced at 1.67 percentage points, meaning that SpaceX, with its Baa1/BBB investment-grade rating, is actually trading at significantly worse levels than some junk-rated issuers.

The magnitude and speed of the plunge have shocked fixed-income traders. Market participants noted that there is almost no precedent for spreads widening so rapidly in recent mega-bond issuances.

"Perfect Storm" Hammers Secondary Market

SpaceX's initial book data for its bond issuance once masked the potential risks.

According to Bloomberg, the deal initially attracted nearly $90 billion in subscription orders, with oversubscription of nearly 4 times, and the issuance size was expanded from $20 billion to $25 billion accordingly.

However, traders revealed that this frenzy was mainly driven by hot money seeking short-term arbitrage, rather than traditional buy-and-hold investors. When these funds tried to quickly cash out in the secondary market, selling pressure surged.

Tony Trzcinka, a portfolio manager at Impax Asset Management, said that the market had previously expected SpaceX's spreads to widen, but the current magnitude amounts to a "perfect storm."

He pointed out that this stems from the significant decline in the company's market value since its IPO, the technical selling pressure from the expanded issuance size, and investors still struggling to price its unique risk profile.

In comparison, Nvidia, which recently completed a $25 billion bond issuance, saw its long-end bond spreads widen by only 11 to 12 basis points, while Alphabet's long-end bond spreads even narrowed.

In addition, SpaceX's credit default swaps (CDS) also widened significantly after trading began, further confirming the market's defensive stance on its credit status.

Cash Flow and Governance Risks Spark Direct Concerns

Equity and bond investors have fundamentally different evaluation logics for SpaceX.

Earlier this month, the company raised $86 billion through its IPO, with its valuation peaking at nearly $3 trillion before falling back to $2 trillion. This valuation was mainly based on expectations of a future surge in its AI revenue.

However, for creditors, the core fact is that SpaceX posted $18.7 billion in revenue in 2025 while incurring a net loss of $4.9 billion. PGIM portfolio manager Michael Campion said:

In the investment-grade bond market, we focus on whether a company can repay its debt. We are accustomed to lending based on actual cash flow rather than expectations.

Allianz Chief Investment Officer Ludovic Subran also said bluntly:

Bond investors are different from equity investors. Equity investors can go to Mars with you, but bond investors will only ask, 'Where is my coupon?'

Furthermore, the extreme reliance on Elon Musk's personal leadership has become a core concern for rating agencies and investors. Fitch Ratings considers this a "key rating constraint."

James Dow, a professor at London Business School, pointed out that SpaceX is currently extremely dependent on Musk and lacks a succession plan, with unusually weak corporate governance, which significantly reduces the attractiveness of its long-term debt.

Tech Giants' Bond Issuance Wave Approaching "Bubble" Boundary

SpaceX's cold reception is not an isolated event but reveals the systemic risks of debt inflation among current tech giants.

As technology companies compete to raise huge funds to finance AI projects, investors are facing a massive bond supply shock.

According to Morgan Stanley data, AI-related debt issuance so far this year has reached $236 billion, up 357% year-over-year, and is expected to double to $570 billion by year-end.

The borrowing frenzy is rapidly pushing up the industry's leverage ratio. Data shows that the total leverage ratio of mega-cap tech companies has doubled in just over two quarters, soaring from 0.9x to 1.8x, exceeding the total leverage ratio of the entire energy industry.

This massive supply is overwhelming market structure. Bloomberg calculations show that as of Wednesday, U.S. investment-grade bond supply in June has reached $180 billion, a record high.

The supply glut has begun to drag on broader credit spreads. Morgan Stanley noted that spreads for mega-issuers are widening overall, with bond performance from Oracle and Meta confirming this trend.

Mark Dowding, Chief Investment Officer of Fixed Income at RBC BlueBay Asset Management, wrote in a report: Bondholders have clearly concluded that, as this loss-making company finances its path to future profitability, there may be substantial additional debt issuance in the future.

Analysts believe that if this pace of debt expansion continues, credit spreads will eventually blow out further, materially constraining the capital expenditure cycles of tech companies.

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