After IPO, then another massive bond issuance “irritates” the market; SpaceX bonds are nearing “junk grade,” and the speed of the selloff surprises traders.

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

As of Friday, SpaceX corporate bonds, which saw "strong demand" on paper, plummeted across the board within just 48 hours of pricing.

The selling pressure on SpaceX bonds across various maturities led to cumulative paper losses of approximately $400 million compared to U.S. Treasuries, with the spread tightening gains achieved by underwriters during the subscription phase being completely erased by declines 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 over 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 current average spread pricing for BB-rated "junk bonds" in the market is 1.67 percentage points, meaning that SpaceX, which holds a Baa1/BBB investment-grade rating, is trading at a significantly worse level than some junk-rated issuers.

The magnitude and speed of the crash have stunned traders in the fixed-income market. Market participants noted that it is hard to find precedents for such a rapid spread widening among recent mega bond issuances.

"Perfect Storm" Pummels the Secondary Market

The initial book data for SpaceX's bond issuance once masked the underlying risks.

According to Bloomberg, the deal initially attracted nearly $90 billion in subscription orders, oversubscribed by nearly four times, and the issuance size was accordingly expanded from $20 billion to $25 billion.

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

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

He pointed out that this stems from the sharp decline in the company's market cap since its IPO, the technical selling pressure from the expanded issuance size, and ongoing investor confusion over how to price its unique risk profile.

In comparison, for Nvidia's recent $25 billion bond issuance, the spread on its long-dated bonds widened only by 11 to 12 basis points, while the spread on Alphabet's long-dated bonds even narrowed.

Furthermore, SpaceX's credit default swaps (CDS) also widened significantly after trading began, further confirming the market's defensive posture on its creditworthiness.

Direct Concerns Over Cash Flow and Governance

There is a fundamental divergence in how equity and bond investors assess SpaceX.

The company raised $86 billion through its IPO earlier this month, with its valuation peaking at nearly $3 trillion before retreating to $2 trillion, a valuation largely based on expectations of a surge in future AI revenue.

However, for creditors, the core fact is that while SpaceX generated $18.7 billion in revenue in 2025, it incurred a net loss of $4.9 billion. Michael Campion, a portfolio manager at PGIM, stated:

In the investment-grade bond market, we focus on whether a company can repay its debts. We are accustomed to lending based on actual cash flow, not expectations.

Ludovic Subran, Chief Investment Officer at Allianz, also remarked bluntly:

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

Additionally, 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."

Professor James Dow from the London Business School pointed out that SpaceX is currently heavily dependent on Musk and lacks a succession plan, making corporate governance unusually weak, which significantly diminishes the attractiveness of its long-term debt.

Tech Giant Bond Issuance Wave Nears "Bubble" Territory

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

As tech companies compete to raise huge sums to fund AI projects, investors are facing a massive supply shock in bonds.

According to Morgan Stanley, AI-related debt issuance 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 industry leverage. Data shows that the total leverage ratio of mega-cap tech companies has doubled in just over two quarters, from 0.9 times to 1.8 times, exceeding the total leverage ratio of the entire energy sector.

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

Supply glut has begun to drag on broader credit spreads. Morgan Stanley notes that spreads for mega-cap issuers are widening overall, a trend confirmed by the performance of Oracle and Meta bonds.

Mark Dowding, Chief Investment Officer of Fixed Income at RBC BlueBay Asset Management, wrote in a report that bondholders have apparently concluded that with this loss-making company financing its path to future profitability, there may be a significant amount of debt issuance in the future.

Analysis suggests that if this pace of debt expansion continues, credit spreads could eventually erupt further, substantively constraining the capital expenditure cycle of tech companies.

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