Tesla investors are demanding the biggest return in history to hold the company's debt

  • Tesla junk bonds hit a record-low price Tuesday as the company’s stock price also plummeted.
  • The company’s 2025 notes were trading at $US82.012 with a yield of 9.18%, according to data from Bloomberg.
  • Credit-default swaps, the products that allow traders to protect against a default, hit a record-high price.

Tesla‘s stock price isn’t the company’s only financial metric tumbling this week.

The price of Tesla debt has plummeted alongside that of the company’s equity shares, hitting a record low of $US82.012 on Tuesday morning, according to Bloomberg data.

Tesla’s junk bonds, $US1.8 billion of which are due in 2025, were trading at a yield of 9.18% on Tuesday morning compared with the originally issued 5.3%. The notes are rated CCC+ by Standard and Poor’s, putting them right in the middle of the firm’s “non-investment-grade” ratings.

Traders were also paying substantial amounts to protect against a Tesla default, with the price of five-year credit-default swaps hitting 674, according to Morgan Stanley, versus 200 at Ford for comparison. In other words, costs to insure $US100 of Tesla debt hit $US6.74, surpassing the record of $US6.58 from July 2018.

Tesla’s stock price on Tuesday briefly opened below $US200 for the first time since 2016. Shares are now down more than 34% this year.

That slide could be affecting Tesla’s credit, Adam Jonas, an analyst at Morgan Stanley, said Tuesday.

“From our perspective at least, it appears movements in news flow and sentiment in the equity market are informing moves in the credit market for Tesla,” he said in a note to clients in which the firm cut its worst-case-scenario target for shares to $US10 from $US97, citing the company’s increased debt load and uncertainty in China, where the company is constructing its new Gigafactory.

“As the shares trade near a 3-year-low, we review key investment considerations and scenarios for a name that is arguably the most strategically important but has among the widest ranges of outcomes and uncertainty of any major auto firm,” Jonas said.

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