Traders Are Dumping Tech Bonds to Make Room for Amazon Debt Deal

Amazon.com Inc.’s massive bond sale dragged down outstanding hyperscaler debt on Tuesday as investors sold existing securities to fund the new issue, signaling growing fatigue over the barrage of artificial intelligence financings.

The e-commerce giant is looking to raise at least $25 billion in a deal that could also increase on investor demand, Bloomberg reported. The eight-part offering is heaping pressure on the broader tech space, with the sector among the worst performers in the US high-grade secondary market.

Amazon’s existing bonds, as well as notes from SpaceX, Alphabet Inc., Nvidia Corp., Meta Platforms Inc. and Oracle Corp., are among those getting hammered in the secondary market. One dealer was quoting Amazon’s outstanding bonds about seven to 10 basis points wider while another quoted SpaceX at nine to 13 basis points wider, according to runs — or lists of bond prices from dealers — reviewed by Bloomberg.

Amazon and Alphabet’s Canadian dollar bonds also weakened on Tuesday.

“Investors are selling hyperscaler bonds today for the same reason people sell one house before buying another — they need to free up capital,” said John Lloyd, global head of multi-sector credit and a portfolio manager at Janus Henderson Investors. “The difference is that hyperscaler bonds are already abundant, and most portfolios are well stocked.”

The fundamental picture for the sector remains strong and Tuesday’s weakness doesn’t necessarily reflect a change in the underlying credit story, added Lloyd. Still, investors are increasingly questioning how much additional debt the sector will need to finance AI infrastructure over the coming years, he added. Janus Henderson is underweight the tech sector and hyperscalers due to the amount of supply that will continue to hit the market.

“When supply keeps coming, issuers have to pay investors for that incremental balance-sheet capacity,” he said.

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The new issue concessions that borrowers pay to raise fresh debt compared to existing bonds could average 10 basis points to 15 basis points for the new Amazon deal, according to Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management. He’s also underweight the tech sector as he expects capex numbers to continue surprising on the upside, which should spur more debt issuance.

“Unless the market sees more evidence of large-scale equity raising to fund that capex, spreads are likely to remain under pressure,” he said. “We see better value in select data center deals where at least you have a lot more spread compensation on the table.”