Stock tickers get the headlines. Bonds tell you what lenders really think. On Friday, Oct. 23, Oracle's (ORCL) bond due in 2040 yielded 8.32%. The index of junk bonds, the riskier kind of company debt, yielded 7.625%. Oracle is still filed under investment grade in the Journal's table, the safer class. The price says lenders aren't so sure.
The table comes from MarketAxess. It lists the investment-grade bonds whose spreads moved the most. A spread is the extra yield over a Treasury of the same length. Oracle's 5.375% bond due July 15, 2040 sat at 332 basis points over Treasurys. That's up 6 on the day and up from 309 a week earlier. The U.S. 10-year Treasury closed at 4.987%, so 8.32% is a long way above it. Part of that is the date. A bond due in 2040 pays more than a short one. The spread strips that out, and 332 is still wide. For comparison, PACCAR Financial's 2031 bond trades at 25 basis points over. Merck's (MRK) 2028 bond trades at 25 too. That's what calm credit looks like.
Here's why Oracle stands out. It's building data centers for AI on borrowed money, and so is everyone else. “More and more these [AI] infrastructure-related investments are driven by debt,” Michael Feldman of ClearBridge Investments told the Journal's Hannah Erin Lang. Rates are rising at the same time. Heard on the Street shows Meta's long-term debt going from $28.8 billion at the end of 2024 to $80.9 billion in the third quarter. This week Meta said it would issue a new class of nonvoting stock to raise more. Its shares fell almost 7% on Thursday. The lenders have noticed. Oracle's stock is down 35.27% this year, at $126.16.
Your bond fund might be the lender
A plain bond index fund owns bonds in proportion to how much each company has borrowed. So the biggest borrowers become the biggest holdings. That's the quiet trap of a core bond fund in a year like this one. Other names on Friday's wider-spread list are familiar too. UnitedHealth (UNH) sits at 42 basis points, IBM at 52, Kinder Morgan (KMI) at 68. Those moves were small, 4 to 6 points. Oracle's was the one that mattered. The paper doesn't say what rating Oracle carries, and we won't guess. The yield says enough.
Our read
This is Fixed Income, IN02. We own Oracle in 13 books, held at weight. Nothing added. UnitedHealth is in 9, IBM in 4, Kinder Morgan in 15, Merck in 11, ADM in 5 and Occidental in 10, all at weight. The stock is our exposure, and it's small. What we're watching is the credit. When an investment-grade bond pays more than the junk index, the market is sorting the AI builders into two piles. One pile can fund the build from cash. The other has to keep borrowing while rates rise. Feldman's question in the Journal is the right one, how much more these companies can borrow if rates keep going up. We'd rather hold the stock at a small weight than lend to the build at 8.32% and feel clever about it.
Your connection is the bond side of your own plan, and it's probably a core bond index fund. This week, open its fact sheet and find two lines. First, the top ten issuers. Second, how much of it sits on the lowest rung of investment grade, one step above junk. If a few AI builders show up near the top, your safe money is lending to the build. That's a choice to make on purpose, and a good one to bring to a review. The umbrella's job is to keep you dry. It shouldn't be the thing that leaks.