$100B in bonds trade like junk, raising fallen angel fears

About $100 billion in investment-grade bonds denominated in U.S. dollars and euros are now trading at spreads wider than the double-B junk curve, according to Bloomberg, putting the credit market on alert for a potential wave of so-called fallen angels — companies whose debt is downgraded from investment grade to speculative, or junk, status.bloomberg

Oracle on the Brink

Oracle ↗ 4.25% and Stellantis ↘ 1.11% are among the most prominent names in that group of distressed investment-grade issuers. Oracle's position is particularly precarious after S&P Global Ratings downgraded its long-term issuer credit rating in July from BBB to BBB-, just one notch above junk territory. S&P analysts cited the company's ballooning artificial intelligence infrastructure spending, writing that they had "underestimated the scale of the investments required to expand the AI business and its impact on our overall view of Oracle's creditworthiness".theedgemarkets+2

Oracle's stock has fallen roughly 64% from its peak in September 2025, according to Yahoo Finance, as investors reassess the cost of its AI buildout. The downgrade places Oracle among a growing cohort of companies whose heavy AI-related capital expenditures are straining balance sheets and raising questions about long-term returns.finance.yahoo

AI Debt Boom Amplifies Concerns

The fallen angel fears come as the broader credit market grapples with an unprecedented wave of AI-related borrowing. Morgan Stanley research projects that worldwide AI-related corporate debt issuance will reach approximately $570 billion in 2026. Reuters reported that U.S. corporate bond issuance surged 26% in the first half of the year, driven largely by AI-related fundraising from companies including Amazon Amazon.com, Inc. ↗ 2.39%, Alphabet ↗ 1.10%, and Nvidia ↘ 0.30%.aol+2

Fitch Ratings warned in a July 27 report that an AI market correction is emerging as a major global credit risk, noting that AI-related investment added 1.4% to U.S. GDP growth in the first quarter of 2026. "The medium- and long-term potential of the underlying technology is highly uncertain, as with previous tech cycles," the agency wrote.reuters+1

Market Braces for Downgrades

JP Morgan estimated earlier this year that $84 billion in bonds could fall to junk status in 2026, a figure that now appears conservative given the $100 billion already trading at junk-like spreads. If realized, a large-scale downgrade cycle would force institutional investors bound by mandate to sell affected bonds, potentially triggering a cascading repricing across credit markets.vaneck

The convergence of heavy AI spending, uncertain returns, and tightening rating agency scrutiny has left credit investors navigating what Bloomberg described as a potential "new era of fallen angels".bloomberg