The Darwin Trade: AI Data Centre Bonds Crack as Fast Money Runs Out
In mid-October the debt that financed the AI build-out began trading like something else entirely. Bonds issued for major projects whose tenants include Meta, Nvidia and Oracle — Hyperion, Sopaipilla and Project Excalibur — have fallen well below par in recent weeks, the Financial Times reported. The largest, the $27.3bn Hyperion bond sold by Beignet Investor, a special purpose vehicle backed by Blue Owl and Meta, priced at par in October 2025 with a 6.581% coupon maturing in 2049. It traded above 110 cents within days, hit a record low of 94.4 cents on 22 September, and slipped to a little under 92 cents this week. Bonds for the Blackstone-owned QTS campus in Georgia leased to Microsoft are below 88 cents.
"Data centre bonds are having their Darwin moment, where the weakest credits struggle to survive," Ludovic Subran, chief investment officer at Germany's Allianz, told the FT. The surge in credit spreads that followed power and construction delays, he said, showed data centre debt "is priced too tight for execution risk."
Neocloud borrowers have been hit hardest. CoreWeave's $1.25bn of unsecured notes due 2032, sold at par in June with a 9.625% coupon, fell below 80 cents and traded in the mid-70s, pushing yields past 15% and at one point above 16%; its 9.75% notes due 2031 reached a 15.78% yield to maturity. Five-year credit default swaps — insurance that costs more as a borrower looks riskier — touched an intraday record of 1,194.5 basis points before settling near 1,088, up roughly 177% in a year, implying a five-year default probability above 60% against roughly 30% a year ago. Oracle's five-year swaps widened 26bps to a record 288bps, and SoftBank's hit 424bps.
CoreWeave chief executive Mike Intrator told staff in an internal memo that markets can sometimes "misunderstand and act irrationally", and that the company's deal backlog more than covers its debt obligations: $104.2bn of contracted revenue in the second quarter, up from $99.4bn in the first, plus more than $25bn of net new customer commitments in the third. Jensen Huang, whose Nvidia holds about a 10% stake in CoreWeave, told reporters in Stockholm that the company's "financial strength is improving every day" and that no backstop was needed. The shares rose about 5% on Thursday after a week in which they fell roughly a fifth.
The bond market is pricing an equation rather than a narrative. Gartner estimates that through 2030, AI data centre owners must generate a cumulative $8.5tn in revenue just to cover announced capital spending, financing costs and a 12% return on invested capital — and expects more than 80% of neocloud providers to cease independent operations by 2030. CoreWeave alone carries roughly $50bn of debt and obligations and is expected to burn about $25bn of free cash flow this year. On the demand side, OpenAI has pushed its listing to next year, while Anthropic, reporting $16.8bn of quarterly revenue, saw investors temper valuation expectations.
The underwriting side is stuck too. A group led by JPMorgan and MUFG has spent more than six months distributing $38bn of construction debt for Oracle-leased data centres in Texas and Wisconsin, and some lenders are now offering pieces to non-bank buyers at a discount. S&P cut Oracle to BBB- in July; the company served a force majeure notice on its New Mexico "Project Jupiter" campus on 24 September, and the $18bn of loans tied to that site have traded at 85 to 91 cents.
Regulators were early. The Bank of England's Financial Policy Committee said in minutes published at the end of September that global AI-related debt issuance reached about $450bn by early September, more than double all of 2025, citing Morgan Stanley; that JPMorgan expects about $4.1tn of AI capital spending to be debt-financed between 2026 and 2030; and that private credit may fund some $700bn of data centre spending in 2026-28. It named rising leverage, limited transparency and "circular arrangements", warning that the risk of "a sharper correction with spillovers to core markets" persisted. AI issuers also accounted for 47% of sterling corporate bond supply this year.
Investors are not abandoning the theme so much as re-ranking it. Capital is moving towards debt backed by investment-grade hyperscalers such as Microsoft and Google and away from single-tenant, highly levered structures. Wellington Management and other large buyers have stepped back, CyrusOne and QTS Realty had to widen pricing to clear, and Pure Data Centres scrapped a planned €1bn Nordic bond in favour of bank loans. The spillover reaches beyond tech: Bank of America estimates the surge in corporate issuance pushed 10-year Treasury yields about 0.3 percentage points higher this year, with the benchmark near 5.17%.
Supply is already slowing. Morgan Stanley data show global AI-related debt issuance fell to $23bn in September, nearly half the previous month, against a June peak of $113bn, even as the full-year estimate stays near $570bn. New deals are clearing at higher coupons and tighter covenants, which resets the hurdle for everything behind them. The equity window is closing too: Nvidia-backed Firmus withdrew its A$7.1bn ASX listing on 9 October — which would have been Australia's largest since Telstra in 1997 — and turned to private capital.