10-Year Yield Over 5% as CoreWeave's $47B Debt Signals AI Funding Squeeze

The yield on the 10-year Treasury breached the 5% level Tuesday, coinciding with Fed policymakers signaling a quicker pace of rate increases, while CoreWeave disclosed debt of nearly $47 billion. The boom in AI borrowing now rests on interest rates that the central bank is elevating.

Weakness does not lie on the demand side: CoreWeave, a provider of AI computing capacity to technology companies, surpassed revenue forecasts and raised its outlook. The pressure comes from financing, forcing debt-heavy AI companies and their shareholders to shoulder increased capital expenses.

A $132.5 Billion Backlog Meets 16% Bond Yields: Will It Work?

In its third-quarter results, CoreWeave posted a 168% revenue increase to $3.66 billion, along with a contracted backlog worth $132.5 billion.

However, certain of CoreWeave's bonds have recently offered yields of over 16%.

“At current yields, we do not intend to issue additional parent-level unsecured debt through 2027.”

The remarks came from finance chief Nitin Agrawal during the earnings call. Unsecured debt is not backed by collateral.

To raise funds, CoreWeave is offering equity via a newly established at-the-market facility, allowing it to distribute as many as 35 million shares, consequently reducing the stake of current investors.

Bloomberg reported that D.A. Davidson analyst Gil Luria noted interest payments now surpass CoreWeave's adjusted earnings from operations.

Luria added that Nvidia has come to CoreWeave's aid multiple times, but that assistance could end if CEO Jensen Huang resigns amid a board investigation into his connections with an individual suspected of being a Chinese spy.

When the AI Debt Boom Encounters Rising Rates, Who Shoulders the Cost?

Atsi Sheth, chief credit officer at Moody’s, commented that leveraged borrowers refinancing loans from 2021 will see increased debt expenses next year.

At the same time, an undisclosed owner is auctioning roughly $500 million worth of data center loan assets.

Concurrently, Fed Governor Christopher Waller proposed a half-point interest rate hike.

The probability of a rate hike in December has reached 100%, according to CME Group's FedWatch, climbing from an 84% likelihood recorded the prior day.

Willy Walker, CEO of lender Walker & Dunlop, stated that about $650 billion of commercial property debt comes due in 2027, an amount approximately equal to the sum US data centers raised in 2026.

CoreWeave client Anthropic is set to list on the Nasdaq next week, offering an indicator of whether public investors will still finance AI at these yields.