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letterStrategists say the rare 100-year sterling bond is the latest sign of a late-cycle boom in credit markets as technology hyperscalers increase borrowing to historic levels to fund the construction of vast data centers and artificial intelligence infrastructure.
The Century bond is the first issued by Google owners in sterling and is part of a wider multi-tranche, multi-currency lending exercise Approximately US$20 billion. The bond issuance has maturities across U.S. dollars, euros and pounds sterling and includes a first-time Swiss franc bond issuance.
Century bonds are still rare, and they are more common than government borrowers. Demand typically comes from large institutional investors, such as pension funds and insurance companies, seeking to match long-term liabilities.
Alphabet joins a small group of issuers of sterling-denominated Century Bonds, including Oxford University, Wellcome Trust, EDF Energy and the Mexican government.
The 100-year bond attracted nearly 10 times the order book on Tuesday and sold for 1 billion pounds ($1.37 billion), with a coupon 120 basis points higher than the 10-year British government bond, Bloomberg reported, citing anonymous sources.
“Exceeding historical scale”
Bill Blain, CEO of Wind Shift Capital, said the deal reflected the “excessive historical levels” of debt being raised in public and private markets. Financial AI Expands.
Alphabet said last week its capital expenditure It is expected to reach $185 billion this year.
“I applaud them for taking full advantage of the opportunity they have to sell higher-faceted 100-year bonds,” Bryan told CNBC. “They clearly identified the need… and that’s what UK insurance and pension funds want to take on.”
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But with credit spreads at historically tight levels, long-term data center demand uncertain and rapid technological change creating winners and losers in the industry, the deal is further evidence of a market froth surrounding artificial intelligence, Bryan said.
“Companies that saw an opportunity and were able to seize it — they saw the opportunity because there was a bubble there and that got people excited about being a part of it,” he said.
“I think, in fact, the 100-year bond issuance, you don’t get much more frothy than this. If you’re looking for a signal of a top – even if it’s a very well executed trade – it does look a bit like a signal of a top, absolutely.”
Included as competitors Oracle, Amazon and Microsoft Infrastructure spending has also been expanded – total debt issuance by tech giants is expected to reach $3 trillion in five years –Century bonds also expand Alphabet’s lender base, strategists said.
“It’s interesting that Alphabet is in the long-term market as it prepares to issue sterling to fund its AI capex,” said Nachu Chockalingam, head of credit at Federated Hermes in London. “They are looking to capitalize on insurance and pension needs as well as diversify funding sources to avoid over-saturation of dollar markets.”
Tatjana Greil Castro, co-head of public markets at Muzinich & Co., said the offering is investors’ bet that Alphabet can continue to reinvent itself for the next 100 years and beyond.
“You do jump into a company and pay interest for the next 100 years. It’s very rare…even governments don’t actually issue 100-year bonds,” she told CNBC’s “Squawk Box Asia” on Wednesday.
“Untested waters”
Simon Prior, manager of the Premier Miton fixed income fund, said pension funds would welcome the diversification of names on that part of the curve offered by highly rated issuers such as Alphabet, compared with EDF and the Mexican government.
“The fact that they are issuing sterling is not a specific indication that they are investing in the UK, but rather provides more diversification of funds, having taken advantage of the dollar market the day before while issuing Swiss francs,” Pryor told CNBC via email.
“I hope they will be able to hedge it back into the national currency rather than just leaving a small portion of their revenue and profits from (the UK) to take on the liability.”
Still, Pryor warned that the 100-year bond issuance remains relatively “untested territory.”
“Amid a volatile global and local political environment and despite the evolving nature of the industry, technology company shares are still trading at historically high prices, with buyers looking to lock in yields of just over 6%,” he said.
Blain added: “The overall scale of the AI hyperscale debt fest reminds me of a lot of situations I’ve seen in the past, especially in a market that has a theme and then takes it to extremes without really understanding what they’re buying.”
He also drew a sharp contrast between corporate and sovereign debt, noting that while sovereign debt is generally less likely to default due to governments’ ability to print money, in contrast corporate borrowers are affected by similar forces to the stock market, such as failure to meet targets and technological change.
