---
title: "Will CoreWeave Trigger a U.S. Junk Bond Market Crisis? Is Oracle Next?"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/302051001.md"
description: "CoreWeave bond yields have surged to 16%, with the five-year CDS implying a 63% probability of default, comparable to levels seen before Lehman Brothers' collapse. This directly threatens $14.1 billion in data center junk bonds supported by its rental income. Deutsche Bank warns that Oracle poses an even greater risk: rated BBB at the lower end of investment grade, its CDS spiked 36 basis points in two days. A downgrade would trigger forced liquidation by institutional investors, spreading the crisis from the junk bond market into the heart of the investment-grade sector"
datetime: "2026-10-16T03:19:48.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/302051001.md)
  - [en](https://longbridge.com/en/news/302051001.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/302051001.md)
generator: "portal-rs"
---

# Will CoreWeave Trigger a U.S. Junk Bond Market Crisis? Is Oracle Next?

Cracks in the AI infrastructure financing chain are spreading from the periphery to the center.

CoreWeave’s bonds are deeply distressed. As a tenant, it supports the solvency of over $14 billion in high-yield data center bonds. Deutsche Bank’s comprehensive credit mapping shows that AI credit differentiation is accelerating—AA-rated tech giants continue to enjoy quasi-sovereign financing costs, but **Oracle’s CDS, at the lower end of investment grade, has widened sharply. A downgrade would trigger massive forced liquidation**, pushing this "peripheral crisis" into the market's core.

**CoreWeave’s bonds have traded at distressed levels for three consecutive days.** Its 9.625% notes due in 2032 closed with a yield of approximately 14%. According to Reuters, the yield on the 2031 notes exceeded 16%—a level typically regarded as a distress signal. The five-year CDS settled at 1,117 basis points, implying a roughly 63% probability of default within five years, comparable to CDS levels in the days preceding Lehman Brothers' bankruptcy filing. **Since their issuance in June, the price of the 2032 notes has fallen below 80 cents, entering the distress zone defined by market convention.**

**The core issue extends beyond CoreWeave itself.** CoreWeave is the sole tenant for seven of the 20 project-financed data center bonds in the high-yield market, involving $14.1 billion in debt, which accounts for 31% of the total market volume. This means that CoreWeave’s cost of capital crisis directly transmits to the solvency of bonds issued by Applied Digital, Core Scientific, Galaxy Digital, and others.

Meanwhile, Deutsche Bank warns that Oracle’s five-year CDS surged 36 basis points in two days to 288 basis points. If its BBB rating is downgraded, institutional investors restricted to holding only investment-grade assets will be forced to sell, triggering systemic chain reactions.

## AI Exposure in the Junk Bond Market: $14.1 Billion Hinges on CoreWeave

According to Morgan Stanley’s latest monthly report, "The State of AI Financing: Pause, Not Retreat," there are at least 20 project-financed data center bonds in the high-yield market, with a combined debt size of $45.6 billion. These bonds finance 4,063 MW of critical IT capacity, with each bond issued by a single special purpose entity, relying on rental payments from a single tenant for debt service.

**CoreWeave is the largest tenant and the most vulnerable link.** Among these 20 bonds, seven involve CoreWeave as the tenant, covering $14.1 billion in debt and 1,512 MW of capacity, accounting for 31% and 37% of the totals, respectively. This exceeds the Fluidstack series backed by Google ($11.9 billion) and NVIDIA ($8.4 billion), making CoreWeave the largest single source of rental income in the high-yield data center market.

Specific issuers relying on CoreWeave’s rent include:

-   **Applied Digital (APLD)**: Two bonds totaling $3.94 billion ($2.35 billion in 9.25% notes due 2030 and $1.59 billion in 7% notes due 2031, both for the Polaris Forge project in Ellendale, North Dakota). Additionally, there is a $2.15 billion Polaris Forge 2 bond with Oracle as the tenant;

-   **Core Scientific (CORZ)**: $3.3 billion, financing 590 MW of capacity distributed across Texas, Georgia, Oklahoma, and North Carolina. This is the single bond with the largest CoreWeave-leased capacity on the tracking list;

-   **Galaxy Digital (GLXY)**: $3.51 billion in 9.875% notes for the Helios campus in Lubbock, Texas, with final delivery scheduled for March 2028;

-   **Edged** ($1.3 billion, jointly leased by CoreWeave and Alibaba), **Elk Grove Village** ($900 million), and **DDC 01 Propco** ($1.12 billion, Richmond, Virginia). The last one was priced on September 23, just three weeks before the market turmoil intensified.

**This represents double exposure, not simple circular financing.** For example, holders of Galaxy bonds bear both the construction risk in Lubbock and the credit risk of whether CoreWeave can continue paying rent from 2028 onwards.

## The Market Prices by Tenant: Spread Divergence is Clear

Morgan Stanley’s spread data clearly presents the market’s judgment. As of September 28, the average spread for the seven CoreWeave-tenant bonds was approximately 400 basis points, double that of the four Google-backed Fluidstack deals (Cipher, TeraWulf, Flash, Meridian, at around 195 basis points), and significantly higher than Amazon-leased bonds (around 150 basis points). **Within the same asset class, structure, and similar ratings, the only variable is the name on the lease and whether there is a joint guarantee from a hyperscale cloud provider.**

****

The bonds with the widest spreads share common characteristics: Zenith Arc (Jane Street tenant, Oklahoma, final delivery in October 2028) has a spread of 599 basis points and a yield of 11.09%; Galaxy has a spread of 559 basis points/yield of 10.68%; Edged has a spread of 498 basis points/yield of 9.92% (widening by 160 basis points since issuance); and SoftBank-leased SE Cosmos has a spread of 451 basis points. **Weak tenants, long construction cycles, or both, are common risk factors.**

Notably, the best-performing bond among CoreWeave-tenant bonds is the one with the nearest delivery date—the original Applied Digital 9.25% notes due 2030, with final delivery on October 31, 2026. It is quoted at 104.75 with a spread of 218 basis points. **The closer to power-on delivery, the lower the market’s sensitivity to tenant credit; the further out the delivery date, the higher the weight of tenant credit.**

Furthermore, Morgan Stanley’s Loan-to-Cost (LTC) versus Yield-to-Maturity scatter plot shows that bonds issued in the second and third quarters of 2026 (the peak of the boom) are concentrated in the LTC 85%-95% and YTM 13%-17% range, meaning **the most recently issued bonds have the thinnest equity cushion and the highest required returns**, resulting in the most concentrated risk exposure.

## Deutsche Bank Maps the Entire Market: AI Credit Shows Three-Tier Differentiation

Deutsche Bank Research plotted every bond in the USD investment-grade and high-yield indices by yield and duration, labeling AI-related names, to produce the most systematic overview of AI credit to date.

**The conclusion: Overall AI financing costs are not yet out of control, but divergence at the far end of the curve is widening.**

****

Deutsche Bank divides AI credit into three tiers:

-   **AA-rated AI names** (Meta, Alphabet, NVIDIA, Amazon): Short-end financing costs are around 5%-5.5%, at the bottom of the investment-grade distribution. The market still views them as quasi-sovereign borrowers;

-   **BBB-rated AI names** (Oracle, SpaceX): Financing costs for 10-12 year durations are around 8%-8.5%, at the top of the investment-grade distribution, **approximately 1.5-2 percentage points higher than bonds of similar duration**, forming a distinct "AI tax";

-   **High-yield AI names**: Mostly BB-rated, with yields of 7%-11%, generally in the middle of the high-yield market.

**CoreWeave is the sole outlier.** In the entire high-yield index, the bonds with the highest yields (15%-19%) are usually unrelated to AI, but CoreWeave is an exception—its BB+ rated unsecured 2032 notes fell below 80 cents just four months after issuance, with the five-year CDS settling at 1,118 basis points.

Deutsche Bank points out that CoreWeave rents out computing power under four-to-six-year "take-or-pay" contracts, with pending orders exceeding $100 billion, about two-thirds of which come from investment-grade clients such as Microsoft, Meta, IBM, and Caterpillar. **However, the bond market is clearly more concerned with leverage ratios than customer lists.**

Deutsche Bank also highlights a structural contradiction overlooked by the market: **The depreciation cycle for advanced GPU chips is about four to six years, aligning with contract terms, but the debt financing them has longer maturities.**

This means the collateral depreciates before the debt matures, which is the fundamental reason for the widening spreads at the far end of the yield curve. Coupled with the market repricing expectations for Federal Reserve rate hikes, term premiums will become an additional burden for all borrowers needing refinancing.

## Oracle: The Next Domino?

**Deutsche Bank explicitly lists Oracle as the next risk node requiring close monitoring.**

The bank warns, "This concern could become a self-fulfilling prophecy and risks triggering broader issues for other AI-related names," labeling Oracle as a "bellwether": its five-year CDS surged 36 basis points in two days to 288 basis points, with Goldman Sachs data showing a single-day widening of 31 basis points on Wednesday.

Oracle’s systemic risk lies in its rating position. **Oracle is currently rated BBB, the lowest tier of investment grade.** Once downgraded, a large number of institutional investors restricted to holding only investment-grade assets will be forced into forced liquidation. **This is not an orderly repricing, but a forced liquidity shock.**

From the bond market perspective, the spreads on two Oracle-tenant bonds (Applied Digital’s Polaris Forge 2 and Yondr’s Loudoun County project) are already 185-220 basis points wider than Oracle’s own unsecured bonds of similar maturity. Yondr’s spread widened to nearly 300 basis points in early September. Morgan Stanley warned last week that delays in data center delivery could severely impact Oracle’s debt situation.

## Financing Gap and Long/Short Divergence

**CoreWeave’s core contradiction lies in a $35 billion financing gap.**

In a report titled "Mispricing Creates Buying Opportunities," Deutsche Bank analyst Brad Zelnick reaffirmed his Buy rating and $150 price target for CoreWeave, noting that the company had $15.5 billion in available liquidity at the end of Q2, with 60%-65% of pending orders coming from investment-grade clients. The unlevered internal rate of return on new contracts has jumped from around 15% to "over 20%." However, he also acknowledged the key contradiction:

> **CoreWeave will undoubtedly need additional capital in the next 12-18 months to fulfill existing orders. Operating cash flow for the next 12 months is approximately $10 billion, while required capital expenditure is around $45 billion, leaving a gap of about $35 billion.**

If even half of this gap needs to be financed at the current unsecured bond rate of approximately 16%, additional interest expenses would reach about $2.8 billion annually, exceeding the $2.8 billion total loss analysts expect CoreWeave to incur for the entire year.

Goldman Sachs’ Rich Privorotsky tends to believe the market is "overreacting locally," arguing that "while there are reasonable financing constraints, this does not negate the underlying demand logic." Morgan Stanley believes that "for high-quality high-yield bonds, the risk-reward profile looks attractive if rates stabilize."

The **key prerequisites for both Goldman Sachs and Morgan Stanley are "high quality" and "if rates stabilize"**—conditions that do not hold for a BB- rated building shell in Lubbock with a sole tenant whose CDS is pricing in default, especially against the backdrop of the 10-Year Treasury Yield remaining above 5% and rising expectations for rate hikes.

## Transmission Path: From Periphery to Center

Combining reports from Morgan Stanley and Deutsche Bank, the transmission path of current AI credit risk is relatively clear:

**First layer** is CoreWeave itself—unsecured bond yields at 16%, CDS implying a default probability of over 60%, and a $35 billion financing gap;

**Second layer** is the $14.1 billion in high-yield data center bonds relying on CoreWeave’s rent—issuers such as Galaxy, Core Scientific, Applied Digital, and Edged, where bonds with longer construction cycles and further-out delivery dates carry higher risk;

**Third layer** is Oracle—rated BBB at the lower end of investment grade, with continuously widening CDS. A downgrade would trigger forced liquidation, spreading the crisis from the high-yield market into the heart of the investment-grade sector;

**Fourth layer** is institutional investors such as life insurance companies purchasing these bonds—they are the largest buyers of such project finance bonds and are re-evaluating what kind of credit endorsement the appearance of hyperscale cloud provider names in prospectuses actually signifies.

Deutsche Bank’s conclusion aligns closely with Goldman Sachs’ Privorotsky’s judgment:

> "As the capital expenditure cycle shifts from free cash flow to debt financing, we must increasingly respect the price signals of the credit market. Overall AI financing costs are not extreme, but worrying themes are emerging at the edges."

**Credit crises always start at the periphery. In 2007, subprime mortgages were also considered "manageable."**

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---
> **Disclaimer: This article is for reference only and does not constitute any investment advice.**