SpaceX bond yields rocket towards junk

We're old enough to remember when the market cap of the lossmaking telecom SpaceX was bigger than Amazon's. Heck, for a few precious moments it was bigger than Microsoft's. Maybe one day it will be again, but for now the stock is down 38 per cent from its peak post-IPO valuation.

Punters lucky enough to have been awarded a stock allocation at the outset are still sitting on a tasty [checks notes] 0.8 per cent paper profit at pixel time. But what about the bondholders?

Given heavy issuance by hyperscalers, SpaceX's 2056 bonds were priced with a fairly hefty 175 basis points of additional yield over similar maturity US Treasuries. Sure, this was less than the 200 basis point initial price talk, but as we learnt in Alphaville's debt capital market boot camp, trailing a tasty IPT to lure punters into the deal and then reining it back in as the book builds is totally normal.

And as we've already covered, the full $25bn of benchmark bonds -- issued across the curve -- had a rocky first couple of days of trading. Checking back today, it turns out that the inauspicious beginning was just a prelude to the train wreck that has since unfolded.

If you'd been allocated $100mn of the SpaceX 2056 bonds, you've turned $100mn into $90.7mn in less than a month. Sure, long-dated US Treasury bonds have fallen in value, and this general sell-off at the long end has done some of the work. But the spread on SpaceX 2056 -- the additional yield you're paid to compensate you for the risk that you don't get repaid (among other things) has now widened from the initial +175bps to a whopping +231bps doing more than two-thirds of the work.

For the non-bond-geeks, this is a lot of spread widening. Looking only at the nine days since the bonds were included in ICE BofA indices at the end of June, this spread-widening has made SpaceX 2056 the single worst-performing US dollar triple-B benchmark bond:

Again, for the non-bond-geeks, there are a lot of benchmark triple-B corporate bonds. Of the 5,543 bonds in the ICE BofA triple-B US dollar corporate bond index, 1,450 have at least $1bn face value.

That said, as the chart shows, Oracle bonds are giving SpaceX bonds a run for their money.

When we pulled up the chart showing where the entire universe of triple-B US dollar corporate bonds are valued, it increasingly looks like the market is pricing SpaceX and Oracle in line with one another.

And when we overlay the average spread for double-B US dollar corporate bonds across different maturities (the pink line), it looks a lot like the type of risk that the market has assigned to both SpaceX and Oracle bonds is junk risk.

As long as Oracle and SpaceX don't go bust, these higher yield premiums should turn into higher annualised returns in the future. And this should be of some comfort to hold-to-maturity bondholders who'd prefer not to look at such short-term performance measures.

But for the companies and their stockholders -- given that analysts had the companies down to tap bond markets as the main source of external finance for years to come -- the shift will be an unwelcome one. Still, there are always banks and private credit funds. Oh.