SpaceX’s $25 billion bond deal in late June has proven to be a dud amid apparent investor concern that the company will rely on the debt markets for its massive projected capital spending over the coming years.

The company’s 30-year debt now yields above 7%. A person who bought that debt on June 23 when it was priced already has lost 5% of his or her original investment.

In a widely hyped sale, SpaceX sold the $25 billion of debt following its IPO in five bond tranches with maturities ranging from five years to 30 years. It used the proceeds mostly to pay down existing debt.

There were reports that the deal was more than three times oversubscribed and SpaceX was able to price the bonds at narrower yield premiums above U.S. Treasuries than had been expected.

But the bonds have fallen in price since the deal, mostly reflecting a widening in the yield spreads relative to Treasuries as well as higher Treasury yields. Many Treasury yields are at or near their highs for the year Wednesday.

SpaceX’s $3 billion of 6.65% 30-year debt now trades at around 94 cents on the dollar, down from an offering price of above 99 and yields 7.10%, according to Bloomberg. The yield gap relative to the Treasury 30-year bond has widened to 2.05 percentage points from 1.65 percentage points at the offering.

The $6 billion of SpaceX 5.875% 10-year bonds now yield 6.25% as the spread to a comparable Treasury has widened to 1.65 percentage point from 1.40 percentage point at the offering price.

The SpaceX bonds carry investment-grade ratings of Baa1 from Moody’s; triple-B from S&P and triple-B-plus from Fitch.

The SpaceX bonds, like many in the corporate market, were sold to institutional investors under Rule 144 A and aren’t available to individual investors—although that could change in a year or so if the company decides to register them.

So what is spooking investors? SpaceX now has a strong balance sheet with over $100 billion of cash following its $85 billion IPO, against some $29 billion of debt on March 31.

However, SpaceX plans to ramp up its capital spending, resulting in what analysts expect to be several years of negative free cash flow and substantial debt issuance.

Other big tech companies have ramped up debt sales to fund AI-related spending, including Alphabet, Meta Platforms and Oracle. That may be straining the ability of investors to absorb new debt without some yield concessions.

Oracle, which has similar credit rating as SpaceX has 30-year debt yielding about 7.35%, about 0.25 percentage point higher than SpaceX debt. Alphabet’s 30-year debt yields about 6%, reflecting a higher credit rating than SpaceX at double-A.

In its credit report on SpaceX, S&P analysts projected that the company’s capital expenditures would rise to $128 billion next year and $188 billion in 2028 from $48 billion this year, mostly as a result of the build-out at SpaceX’s xAI artificial intelligence division.

In his initiation report on SpaceX earlier this week, JP Morgan equity analyst Doug Anmuth wrote that he doesn’t see free cash flow until 2031 amid capital spending on “Starship, Starlink, & compute infrastructure buildout.

“Importantly, over the 5-year period 2026-2030, we model ~$350B of negative FCF and ~$375B in debt proceeds. SpaceX raised $85B+ in its recent IPO and an additional $25B in debt shortly thereafter, and as noted above we expect the company to rely heavily on the debt market going forward.” A bullish Anmuth began coverage with an Overweight rating and price target of $225 a share.

SpaceX has sought to assuage creditors by targeting a debt/annual Ebitda (earnings before interest, taxes, depreciation and amortization) ratio of two to three times, which would be consistent with an investment-grade debt rating. The debt/Ebitda ratio is expected to be lower including the company’s cash.

Moody’s wrote that its credit rating reflected SpaceX’s “exceptional franchise strength as the world’s leading orbital launch provider & operator of the largest LEO satellite broadband network.” LEO refers to low earth orbit.

Bond investors also can take comfort from the company’s massive equity market value of $2 trillion. Still, bond investors appear to be demanding higher yields to compensate for what could be heavy bond issuance in the coming years.

SpaceX stock, meanwhile, has cooled off as well since popping after its IPO at $135 a share. The stock dropped 0.8% Wednesday to $148.30 after hitting its lowest price since the June IPO earlier in the session. The stock peaked at $225 on June 16.