According to Zhitong Finance APP, in February this year, when Google's parent company Alphabet (GOOGL.US) issued a £1 billion century bond maturing in 2126 in the pound market, the market showed nearly 10 times oversubscription. At that time, this was the first issuance of a century bond by a technology company since Motorola in 1997, and it was seen as a milestone event in the wave of AI infrastructure investment. Five months later, the price of this bond has fallen to 89.978 pence—marking the first time it has dropped below the par value of 90%. Meanwhile, Google's stock price fell after the earnings announcement, dropping about 7% as of the time of writing, early Thursday trading.

Price Collapse: Over 10% Evaporated in Five Months

Data shows that the century bond with a coupon rate of 6.125% was quoted at 89.978 pence on Thursday. Since its issuance in February at a price slightly below par, its value has cumulatively dropped by more than 7% to 10%. Its risk premium over the risk-free benchmark rate once reached as high as 139.8 basis points.

This decline is extremely rare in investment-grade corporate bonds. Cbonds manager Lana Vaselova bluntly stated, "The decline is not entirely surprising—century bonds are extremely sensitive to interest rate changes, which is why they were so attractive when rates seemed likely to fall."

However, what truly alerts the market is that Alphabet's credit quality has not deteriorated. This is not a story of Google suddenly becoming a high-risk borrower, but rather the duration risk is coming into play.

The Triple Impact of Price Collapse: Resonance of Duration, Supply, and AI Concerns

First Impact: Extreme Duration Risk. The modified duration of century bonds means that for every 1 percentage point increase in yield, the bond price could potentially drop by nearly 15 pence. Since the issuance in February, the global long-term interest rate environment has changed significantly. Following the outbreak of the US-Iran conflict, investors reassessed long-term inflation expectations. The yield on UK 10-year government bonds has hovered around 5%, while the 30-year yield once reached 5.78%—such changes in the interest rate environment are enough to cause devastating price shocks for a century bond.

Second Impact: An Unprecedented Supply Surge, Alphabet is not alone. Since the beginning of this year, Alphabet, Amazon, Meta, Oracle, Nvidia, and SpaceX, six "AI super-scale computing companies," have cumulatively issued about $244 billion in bonds in the global bond market, an increase of more than 14 times compared to $17 billion in 2024. In just the past few weeks, Nvidia, SpaceX, and Amazon have collectively issued about $75 billion in bonds Since the beginning of 2025, among the ultra-large-scale cloud service provider bonds issued, about 79% of the bonds have seen their credit spreads widen compared to their listing day, with prices averaging a decline of 3.3 points from the issuance price. "No matter which market they are issued in, these bonds belong to the worst-performing group." Bryn Jones, head of fixed income at Rathbones, pointed out: "When supply increases, prices will fall."

Third Layer: Concerns about the returns on AI capital expenditures. On July 23, Alphabet released its second-quarter report and raised its full-year capital expenditure forecast from the range of $180 billion to $190 billion to $195 billion to $205 billion. Google Cloud's revenue surged 82% year-on-year to $24.8 billion, but the company consumed $5.9 billion in cash during the quarter—marking the first time in history that free cash flow turned negative.

This is precisely what bond investors are most worried about: when one of the world's most profitable companies starts "burning cash" to the point of negative cash flow, how long will the capital return cycle for AI infrastructure be? CEO Sundar Pichai admitted during the earnings call that AI returns are still in the early stages. For holders of century bonds, "early stages" means uncertainty in cash flow for decades to come.

Market Chain Reaction: From Alphabet to the Entire Ultra-Large-Scale Sector

The decline of Alphabet's century bonds is not an isolated event. Data shows that the long-term bonds issued by Alphabet and Amazon were among the worst-performing bonds in the euro investment-grade bond market on Thursday.

Michael Teig, a credit strategist at UniCredit Bank in Italy, warned in a report: "The recent widening of credit spreads for ultra-large investment company bonds has reignited debates among investors about the viability of their business models, especially in light of their ample capital expenditures."

JP Morgan stated that the current widening of credit spreads for ultra-large cloud computing company bonds is a result of high-rated bond investors trying to digest the accelerated pace of bond issuance. Barclays warned that, given the "increasing concentration risk," investors should not blindly chase these bonds just because of the widening spreads.

Alphabet's century bonds went from being oversubscribed by 10 times to falling below 90 pence in just five months. During these five months, the US-Iran conflict reshaped global interest rate expectations, and AI ultra-large computing companies issued $244 billion in bonds, flooding the investment-grade market, while Alphabet itself reported negative free cash flow for the first time. Under the triple shock, the century bonds that were once fiercely sought after by pension and insurance companies are undergoing the market's most brutal repricing of its AI narrative.

PGIM portfolio manager Michael Campion summarized this by stating: The core consideration for investment-grade bond investments is the issuer's ability to repay debt, and the pricing anchor for debt allocation is the company's real cash flow, not future growth expectations. When the "century story" of AI collides with the "century duration" of century bonds, the market chooses to vote with its feet—at least for now