Alphabet‘s rare 100-year sterling bond is the latest sign of late-cycle exuberance in credit markets, strategists say, as tech hyperscalers ramp up borrowing to historic levels to fund vast data center and AI infrastructure buildouts.
The century bond — the Google-owner’s debut issuance in sterling — is part of a broader multi-tranche, multi-currency borrowing drive totaling some $20 billion. The offering spans maturities across dollars, euros and sterling, and 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 insurers seeking to match long-term liabilities.
Alphabet joins a small group of sterling-denominated century bond issuers, including the University of Oxford, the Wellcome Trust, EDF Energy and the government of Mexico.
The 100-year bond attracted almost 10 times orders for the £1 billion ($1.37 billion) sale on Tuesday, with the coupon reaching 120 basis points above 10-year gilts, according to a report from Bloomberg, which cites anonymous sources.
‘Off-the-historical scale’
Bill Blain, CEO of Wind Shift Capital, said the deal is reflective of the “off-the-historical scale” levels of debt now being raised in both public and private markets to finance AI expansion.
Alphabet said last week that its capex spend is expected to hit $185 billion this year.
“I give them full credit for taking advantage of the opportunity that existed to sell a moderately high coupon 100-year bond,” Blain told CNBC in an interview. “They clearly identified demand… that this was what U.K. insurance and pension funds wanted to cover their liabilities.”
Alphabet.
But with credit spreads at historically tight levels, long-term data center demand uncertain, and rapid technological change set to create winners and losers in the sector, Blain said the deal offers further proof of market froth around AI.
“Firms that have spotted the opportunity and been able to fill it — they’ve spotted the opportunity because there is froth there that’s getting people excited about being involved in that,” he said.
“I think the fact that a 100-year bond comes out, you can’t get much more frothy than that. If you’re looking for a signal of a top — even if it’s a brilliantly-executed deal — it does look a bit like a signal of a top, absolutely.”
As rivals including Oracle, Amazon and Microsoft also scale up infrastructure spending — with tech giants’ total debt issuance predicted to reach some $3 trillion over five years — strategists say the century bond also broadens Alphabet’s lender base.
“It’s interesting that Alphabet is lining up this GBP issuance at the very long end of the market to fund their AI capex,” said Nachu Chockalingam, head of London credit at Federated Hermes. “They are looking to tap into insurance and pension demand, and diversity funding sources to avoid over-saturating the USD market.”
Tatjana Greil Castro, co-head of public markets at Muzinich & Co., said the issuance is a bet by investors that Alphabet can continue to reinvent itself over the next 100 years and beyond.
She told CNBC’s “Squawk Box Asia” Wednesday: “You do take a leap into that company being around to pay interest over the next 100 years. It is very rare… even governments don’t really issue 100-year debt.”
‘Untested waters’
Simon Prior, fund manager for fixed income funds at Premier Miton, said pension funds would welcome the name diversification offered by a highly-rated issuer like Alphabet at that part of the curve, in contrast with EDF and the Mexican government.
“The fact that they are bringing sterling issuance doesn’t indicate ongoing investment in the U.K. specifically, but offers more a diversification of their funding, having tapped the dollar market the day before and concurrently issuing in Swiss Francs,” Prior told CNBC via email.
“I would expect them to hedge it back to their local currency rather than leave their liability with only a small proportion of their revenues and profits coming from [the U.K.].”
Still, Prior cautioned that 100-year issuance remains relatively “untested waters.”
“Buyers will be locking in just over 6% yields in a turbulent global and local political environment, when tech companies are trading at all-time highs in equities despite the ever-evolving nature of the industry,” he said.
Blain added: “The whole point about the sheer scale of the AI hyperscaler debt-fest reminds me so much of so many situations I’ve seen in the past, especially around a market that gets a theme, and then follows it to the extreme, without really getting what it is they’re buying.”
He also drew a sharp contrast between corporate and sovereign debt, noting that while sovereign debt is typically less likely to default, owing to governments’ ability to print money, corporate borrowers by contrast are subject to similar forces as the equity market, such as missed targets and changes in technology.
