Oracle’s bond-market stress climbs to a 16-year high

Oracle just landed at the center of the AI debt fear storm. On Tuesday in New York, a key credit‑risk gauge tied to Oracle’s debt closed at its highest point since the global financial crisis. The cost to protect Oracle against default climbed to about 1.28 percentage points per year, the highest since March 2009, based on end‑of‑day credit derivative pricing from ICE Data Services. That reading jumped almost 0.03 percentage point in a single day and has now more than tripled from 0.36 percentage point in June. This spike followed a heavy wave of bond sales across the tech sector, with Oracle standing out due to both its volume of issuance and its weaker credit rating versus rival cloud giants. The company has issued tens of billions of dollars in bonds in recent months through its own note sales and through large projects it is backing. That combination has turned Oracle’s credit default swaps into a frontline hedge for investors positioning for a possible AI market crash. Debt sales surge and CDS trading explodes The rising price of default protection tracks growing fear over the wide gap between how much cash has already been poured into AI and when real gains in productivity and profits will actually show up. Hans Mikkelsen, a strategist at TD Securities, said the current surge carries echoes of past market manias. “We’ve had these kinds of cycles before,” he said in an interview. “I can’t prove that it’s the same, but it seems like what we’ve seen, for example, during the dot‑com bubble.” Morgan Stanley raised fresh alarms in late November, warning that Oracle’s growing debt pile could push its credit default swaps closer to 2 percentage points, just above the company’s 2008 record high. Tuesday’s reading marked the highest close since March 2009, when the gauge touched 1.30 percentage point. Oracle remains the lowest‑rated of the major hyperscalers. In September, the company sold $18 billion in U.S. high‑grade corporate bonds. Its data center expansion is also tied to the largest AI‑infrastructure deal yet to hit the market. The company’s AI push is closely linked to OpenAI , and the database firm is counting on hundreds of billions of dollars in revenue from OpenAI over the next several years. As of the end of August, Oracle carried about $105 billion in total debt, including leases, based on data compiled by Bloomberg. Roughly $95 billion of that sits in U.S. bonds included in the Bloomberg U.S. Corporate Index. That makes Oracle the biggest issuer in the index outside the banking industry. Investor demand for protection has surged fast. Trading volume in Oracle’s CDS ballooned to about $5 billion in the seven weeks ended Nov. 14, according to an analysis of trade‑repository data by Barclays credit strategist Jigar Patel. That figure was just a little over $200 million in the same period last year. Bond supply expands as AI spending accelerates The AI buildout is not slowing. Spending to expand AI infrastructure and power capacity is expected to push deep into next year. TD’s Mikkelsen projects that U.S. investment‑grade corporate bond sales could reach a record $2.1 trillion in 2026. Issuance for this year already stands above $1.57 trillion, based on Bloomberg News data. Another wave of debt could stretch demand even further. If buyers get overwhelmed, issuers may need to offer higher yields to clear the market. Mikkelsen expects credit spreads to settle into a base range of 100 to 110 basis points above benchmarks in 2026, compared with 75 to 85 basis points in 2025. Heavy borrowing is not new. Other sectors have run massive debt cycles before. The healthcare industry spent years adding leverage last decade as it chased growth yet managed to keep spreads tighter than the broader index, according to Citigroup credit strategists Daniel Sorid and Mathew Jacob in a note dated Nov. 24. Still, those strategists spelled out the risk facing bond investors tied to AI. Corporate bond holders have limited upside if the AI boom takes off. If companies continue to pour money into artificial‑intelligence spending, the credit quality of those debt holdings could weaken. “Investors are becoming increasingly concerned about how much more supply may be on the horizon,” the Citigroup team wrote. “The impact of this hesitation on spreads for the sector has been quite notable.” Sharpen your strategy with mentorship + daily ideas - 30 days free access to our trading program