AI Data Center Bonds Yielding Over 7% Rated Investment Grade but Comparable to Junk Bonds
Bonds for U.S. AI data center projects are being issued with yields in the 7% range. QTS Realty Trust issued $3.9 billion in bonds to finance a data center in Georgia connected to Microsoft, with a yield of approximately 7.23%. BlackRock issued $12.55 billion in bonds for a Texas project linked to Meta, with a yield of 7.534%. The yields of both transactions are assessed at the level of mid-grade junk bonds. Despite being rated investment grade, the scale and structure of the data center projects are raising risk premiums. Both transactions are reported to have been sold to high-yield investors as well. As investments in AI infrastructure grow, companies have borrowed over $410 billion this year for data centers and other AI investments. High-quality bonds from Oracle and SpaceX are also trading at junk bond-level yields. The U.S. junk bond market is approximately $1.5 trillion, which is less than one-fifth of the high-quality bond market. Vanguard Group estimates that the capital expenditure of the top five hyperscalers will reach $800 billion this year.
-- Price
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