Alphabet's landmark 100-year bond, issued in February, has already seen its value drop by more than seven percent. This sell-off occurred within five months of its issuance, coinciding with a broader downturn in long-dated debt and growing skepticism about the future earnings potential of major technology companies, often referred to as 'hyperscalers'.
The sterling-denominated bond, which matures in 2126, was part of a substantial £32 billion bond issuance by the Google parent company on the London Stock Exchange. This century bond marked the first of its kind from a technology firm since the dot-com bubble era of the late 1990s. In the UK, only a few entities, including Oxford University, the Wellcome Trust, and French energy company EDF, have previously issued similar long-term debt instruments.
The issuance, which was ten times oversubscribed at auction, initially sparked concerns that the ambitious artificial intelligence investment programs announced by leading tech firms might be overly aggressive. It was also seen as a positive development for London's credit market. However, the bond has faced considerable pressure from concurrent events, including the Iran war and a general slowdown in the technology sector.
The conflict in the Middle East has prompted investors to reassess their long-term inflation expectations, a critical factor for pricing long-dated debt. Yields across developed economies have risen significantly since late February, with UK government bonds, or gilts, experiencing particular stress due to the nation's reliance on imported energy and high electricity costs.
Inflation and high interest rates negatively impact bond values, as investors demand higher yields to compensate for the increased likelihood of price rises eroding their returns. Lana Vaselova, a manager at Cbonds, noted that 100-year bonds are highly sensitive to interest rate movements, which was precisely why they were attractive when rates were expected to fall. She also observed that technology debt has broadly lost value this year, reflecting investor caution regarding substantial AI investments. The 'Magnificent 7' group of US tech giants has largely traded flat for much of the year, a stark contrast to their previous rapid share price gains.
