Midterm elections combined with nonfarm payroll data may heighten market volatility! Oracle Corporation (ORCL.US) leads 17 companies rushing to issue debt

Oracle Corporation (ORCL.US) led 17 companies in rushing into the U.S. high-grade bond market to issue debt ahead of the U.S. midterm elections. This was the longest issuance queue since September. According to regulatory filings, Oracle Corporation is issuing US$10 billion of U.S. dollar investment-grade bonds and plans to issue a similar amount of common stock to raise funds for artificial intelligence (AI) infrastructure construction. The direct driver of Oracle Corporation's large-scale financing round is its aggressive bet on AI cloud infrastructure. At its investor day in Las Vegas on October 28, Oracle Corporation explicitly stated that capital expenditure for fiscal 2026 had doubled year on year to US$55.7 billion, and according to FactSet, it is expected to jump a further 65% to US$91.9 billion this fiscal year to meet signed demand from major customers for cloud computing power. Oracle Corporation's US$20 billion fundraising move came just days after the company announced a long-term financing plan aimed at funding its heavy investment in AI infrastructure. Oracle Corporation will issue bonds in five tranches with maturities ranging from 3 to 20 years. The financing also follows Microsoft Corporation's (MSFT.US) massive US$25 billion bond issuance. Microsoft Corporation's bond sale broke nearly three months of silence in bond issuance by hyperscale cloud service providers among large technology companies. Borrowers that also flooded into the high-grade primary bond market on Monday included hospital operator HCA Healthcare (HCA.US), defense contractor L3Harris Technologies (LHX.US), and railcar leasing company GATX Corp (GATX.US). Some of these companies had not issued investment-grade bonds for years. For example, HVAC company Carrier Global (CARR.US) had not entered the bond market since 2023. Data showed that other companies that launched bond issuance on Monday included Otis (OTIS.US), Cheniere Energy (LNG.US), AEP Transmission, Textron (TXT.US), Eastman Chemical Company (EMN.US), and Hyatt Hotels Corporation Class A (H.US). The bond issuance wave was the largest by number of issuers since September 8, following a series of corporate earnings that signaled rising spending plans. Traders had expected about US$45 billion of bond issuance this week, as borrowers sought to complete financing before potential increases in market volatility after the U.S. midterm elections on Tuesday and the nonfarm payrolls report on Friday. Ed Al-Hussainy, a portfolio manager at Columbia Threadneedle, said the most important driver was that bond yields had fallen since early October, while interest rate volatility also declined after the Federal Reserve kept its benchmark interest rate unchanged last week. He said: "The high-grade bond market has a solid base of yield-sensitive demand. That demand temporarily retreated during the spike in rate volatility in September and early October." "With the FOMC meeting now over and, so far, no major negative leverage surprises in the third-quarter earnings season, this is a good window for issuers to re-enter the market." Outside the U.S. market, Alphabet (GOOGL.US) issued bonds in the euro bond market for the second time this year. Because market concerns that the pace of AI spending is unsettling investors and triggering a credit market selloff, the company's offering provided yields significantly higher than at its May issuance. Meta Platforms (META.US) is considering issuing at least US$20 billion of high-grade bonds denominated in multiple currencies. According to people familiar with the matter, Meta has asked Citigroup and Morgan Stanley to hold investor calls on Monday and Tuesday respectively. Daniel Sorid, head of U.S. investment-grade credit strategy at Citigroup, said: "High-grade credit is a very deep market, but the key is clarity." AI Financing Concerns and Soaring Credit Risk Indicators Concerns about the massive financing of AI infrastructure continue to simmer in the bond market. Bond buyers are currently demanding higher risk premiums to take on the risk of companies related to the AI investment boom, and have already paid premiums to protect themselves. Oracle Corporation is becoming a "bellwether" for investors betting on AI debt risk. Since last year, multiple companies including Oracle Corporation have flooded the market with hundreds of billions of dollars of borrowed funds to finance new data centers and chip procurement, raising questions about whether these expenditures can generate returns. According to S&P Global, Inc. market intelligence data, Oracle Corporation's five-year credit default swap (CDS) spread earlier last month briefly touched a record high of about 320 basis points, nearly doubling during the year. This level typically corresponds to BB/B-rated (high-yield) credit and is far higher than the pricing warranted by its investment-grade rating. S&P downgraded Oracle Corporation to BBB- in July this year and warned that if the company's leverage continued to exceed 4 times or it failed to achieve positive free cash flow by fiscal 2029, another downgrade could occur, at which point Oracle Corporation's debt would fall into junk territory and could trigger forced selling by institutional investors restricted to investment-grade only. According to FactSet data, Oracle Corporation has issued about US$117 billion of long-term debt, with another about US$39 billion of capital and lease commitments; analysts expect its free cash flow to be about negative US$23.7 billion this fiscal year and to widen further to about negative US$36 billion next fiscal year. Ed Al-Hussainy warned that the enormous funding needed to finance AI data centers and chips is putting pressure on the entire credit market. He said: "Stepping back, across different credit quality tiers, the entire credit market is struggling to digest the scale and speed of financing required for AI infrastructure construction." He noted that even if Oracle Corporation provided positive long-term performance guidance, this "struggle" would not end.