Junk bond buyers are increasingly freezing out tech startups as Core Weave Inc.'s pain raises questions about AI funding. Yields on Core Weave's junk bonds surged to 15% this week after the company explored borrowing in investment-grade markets, sparking lender fears of significant additional borrowing. Core Weave stated its financial position "more than supports" its debt obligations, and Nvidia Corp. CEO Jensen Huang defended the company's financial health. However, investors see a larger issue: a surge in supply is coming.
The broader junk bond market felt the contagion, with average yields reaching 8.41% on Wednesday, their highest in 18 months. On Thursday, JPMorgan Chase & Co. and Goldman Sachs Group Inc. sweetened terms on a $5 billion leveraged loan for AI cloud startup Volta Infrastructure Holdings Ltd., with yields exceeding 11%.
High-yield bond issuers remained largely sidelined, with just three deals totaling $2 billion pricing. Goldman Sachs strategists, including Amanda Lynam, warned that a surge in corporate bond supply is overwhelming debt investors. With over $106 billion in bonds sold this year for AI projects and potential $300 billion in global project finance issuance next year, picking strong credits has become crucial.
Contagion spread across AI infrastructure credits, with average dollar prices on high-yield data center bonds falling from $101 in June to nearly $95. Bonds funding data centers by Tract Capital Management, Prime Data Centers, and Cipher Digital all hit lowest levels since issuance.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing