alphabetThe country’s scarce 100-year pound bond is the latest sign of late-cycle boom in credit markets, strategists say, as tech giants ramp up borrowing to historic levels to fund the buildout of massive data centers and AI infrastructure.
The Century bond, the first pound-denominated issuance by Google’s owners, is part of a broader multi-tranche, multi-currency borrowing effort totaling approximately $20 billion. The product has maturities in dollar, euro and pound sterling, and also includes a debut bond in Swiss francs.
Century bonds remain rare and are more commonly associated with governments than corporate borrowers. Demand typically comes from large institutional investors such as pension funds and insurance companies seeking repayment of long-term debt.
Alphabet joins a small group of sterling-denominated Century Bond issuers including Oxford University, Wellcome Trust, EDF Energy and the Mexican government.
Bloomberg reported, citing anonymous sources, that the 100-year bond attracted nearly 10 times more orders in Tuesday’s 1 billion pound ($1.37 billion) sale, with the coupon reaching 120 basis points above the 10-year note.
“It’s off the historical scale.”
Wind Shift Capital CEO Bill Blaine said the deal reflects the “non-historic” levels of debt currently being raised in both public and private markets to fund AI expansion.
Alphabet announced last week that it expects capital spending to reach $185 billion this year.
“I give them full credit for taking advantage of the opportunity that existed to sell a 100-year bond with a reasonably high coupon,” Blaine said in an interview with CNBC. “They clearly recognized the requirement that this is what UK insurance and pension funds want to cover their liabilities.”
alphabet.
But with credit spreads at historically tight levels, long-term data center demand uncertain, and rapid technological change creating winners and losers in the space, the deal is further evidence of the frothy market around AI, Blaine said.
“Companies saw an opportunity and were able to fill it. They saw an opportunity because there was a bubble that people were excited to be a part of,” he said.
“I don’t think there’s anything more bubbly about the fact that a 100-year bond is being issued. If you’re looking for a top signal, even if it’s a beautifully executed trade, that certainly looks like a top signal.”
as a rival oracle, Amazon and microsoft Infrastructure spending will also increase, with the tech giant’s total debt issuance expected to reach about $3 trillion over five years, and strategists say the Century bonds will also expand Alphabet’s lender base.
“It’s interesting that Alphabet is lining up this sterling issuance at the very long end of the market to fund AI capital spending,” said Natchu Chokkalingam, head of London credit at Federated Hermès. “They are looking to take advantage of insurance and pension demand and diversified funding sources to avoid over-saturation of the US dollar market.”
Tatiana Grail Castro, co-head of public markets at Muzinich & Company, said the issuance is investors’ bet that Alphabet can continue to reinvent itself for the next 100 years and beyond.
She told CNBC’s “Squawk Box Asia” on Wednesday. “You’re certainly going to jump on a company that has to pay interest for the next 100 years. That’s very rare…Even governments don’t actually issue 100-year bonds.”
“Unexplored waters”
Simon Prior, fund manager of the Premier Mitten fixed income fund, said pension funds would welcome the name diversification offered by a highly rated issuer like Alphabet in that part of the curve, as opposed to EDF or the Mexican government.
“The fact that they are issuing sterling does not specifically indicate continued investment in the UK, but the fact that they tapped into the dollar market a day earlier and also issued Swiss francs at the same time provides funding diversification,” Pryor told CNBC via email.
“You would expect them to hedge a small portion of their revenue and profits[from the UK]back into their own currency, rather than leaving them as debt.”
Still, Pryor cautioned that 100-year bond issuance remains relatively “untested territory.”
“Despite the evolving nature of the industry, buyers will secure a yield of just over 6% amidst a turbulent global and regional political environment, with tech company stocks trading at all-time highs,” he said.
Blaine added: “The whole point about the sheer scale of the AI hyperscaler debt fest is very reminiscent of so many situations I’ve seen in the past, especially around markets where they get a theme and then follow it to the extreme without really understanding what they’re buying.”
He also drew a sharp contrast between corporate and sovereign debt, noting that sovereign debt is typically less likely to default due to governments’ ability to print money, while corporate borrowers, by contrast, are subject to forces similar to stock markets, such as meeting goals and changing technology.
