After the IPO, the issuance of a large amount of bonds "upset" the market, SpaceX (SPCX.US) bonds are approaching "junk" levels, and the speed of the decline surprises traders.

Following a record-breaking IPO, SpaceX (SPCX.US) faced intense selling pressure in the secondary market for its $25 billion bond issuance. The long-term loss-making rocket and artificial intelligence company's aggressive financing pace quickly backfired on investor confidence, leading to a significant widening of its bond spreads, approaching speculative grade ("junk") levels. By Friday, SpaceX's corporate bonds had gone from being "in high demand" after pricing to a sharp downturn within just 48 hours. The selling pressure on SpaceX's bonds has led to accumulated mark-to-market losses of around $400 million compared to U.S. Treasury bonds, as the underwriters' narrowing of spreads during the subscription phase was completely offset by the plummeting of the long-end bonds. According to MarketAxess data, the 10-year bond yield of SpaceX has risen to nearly 6%, with the spread widening to over 1.6 percentage points compared to U.S. Treasuries. The spreads for the long-term bonds maturing in 2046 and 2056 have skyrocketed to 1.93 and 2.01 percentage points respectively. According to Ice Data Services data, the average spread for BB-rated junk bonds in the market is 1.67 percentage points, meaning that SpaceX, with its investment-grade Baa1/BBB ratings, is trading significantly worse than some junk issuers. The magnitude and speed of the sell-off have shocked fixed-income market traders. Market participants point out that in recent mega-bond issuances, there are hardly any precedents where spreads have widened to such levels so rapidly. "Perfect storm" hits the secondary market The initial book data for SpaceX's bond issuance initially masked potential risks. According to Bloomberg, the transaction initially garnered nearly $90 billion in subscription orders, oversubscribed nearly four times, and the issuance size increased from $20 billion to $25 billion. However, traders revealed that this frenzy was mainly driven by fast money seeking short-term arbitrage, rather than traditional buy-and-hold investors. When these funds attempted to quickly take profits in the secondary market, the selling pressure intensified. Tony Trzcinka, portfolio manager at Impax Asset Management, stated that the market had already expected SpaceX's spread to widen, but the current level can be described as a "perfect storm." He pointed out that this was due to the significant drop in the company's market value since the IPO, the technical selling pressure from the increased issuance size, and investors still struggling to price its unique risk profile. In contrast, NVIDIA Corporation, which recently completed a $25 billion bond issuance, saw its long-term bond spreads widen by only 11 to 12 basis points, while Alphabet's long-term bond spreads even narrowed. Additionally, SpaceX's credit default swaps (CDS) widened significantly after trading opened, further confirming the market's defensive posture towards its creditworthiness. Cash flow and governance risks raise direct concerns There is a fundamental dissonance in the evaluation logic of stock and bond investors towards SpaceX. The company raised $86 billion through its IPO earlier this month, reaching a valuation peak of nearly $3 trillion, then falling to $2 trillion, mainly based on expectations of a surge in AI revenue. However, for bondholders, the core fact is that SpaceX achieved $18.7 billion in revenue in 2025 while net losses amounted to $4.9 billion. Michael Campion, portfolio manager at PGIM, stated: In the investment-grade bond market, we focus on whether a company can repay its debt, and we are accustomed to lending based on actual cash flow rather than expectations. Ludovic Subran, Chief Investment Officer at Allianz, also stated: Bond investors and stock investors are different. Stock investors can go to Mars with you, but bond investors will only ask,'Where's my coupon?' Furthermore, the extreme reliance on Elon Musk's personal leadership has become a key concern for rating agencies and investors. Fitch Ratings considers this a "key ratings constraint." James Dow, professor at London Business School, pointed out that SpaceX is currently heavily reliant on Musk, lacks a succession plan, and has exceptionally weak corporate governance, significantly reducing the attractiveness of its long-term debt. Tech giant bond wave approaching "bubble" territory SpaceX's treatment is not an isolated incident but exposes a systemic risk of debt expansion among current tech giants. As tech companies compete to raise massive funds to finance AI projects, investors are facing a massive supply shock of bonds. According to data from Morgan Stanley, debt issuances related to AI have reached $236 billion so far this year, a 357% increase year-on-year, expected to double to $570 billion by the end of the year. The borrowing frenzy is rapidly increasing industry leverage. Data shows that the total leverage ratio of mega-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 industry. This massive supply is weighing down on market structure, with Bloomberg calculations showing that as of Wednesday, the U.S. investment-grade bond supply for June had reached $180 billion, hitting a new historical high. The oversupply is starting to drag down wider credit spreads. Morgan Stanley points out that spreads for mega-issuers are widening overall, with the bond performance of Oracle Corporation and Meta confirming this trend. Mark Dowding, Chief Investment Officer for fixed income at RBC BlueBay Asset Management, wrote in a report that bondholders clearly conclude that with this loss-making company financing its path to future profits, there could be a significant amount of debt issuance in the future. Analysts believe that if this pace of debt expansion continues, credit spreads could eventually further explode, imposing substantial constraints on the capital expenditure cycle of tech companies. This article was translated from "Wall Street See", author: Yu-Long Bao, edited by: Jinliang Zhang.