Artificial intelligence spending and the growth of the private credit market aren’t just spurring companies to borrow more, they’re also helping to generate fresh records for corporate-bond trading. An average of $50 billion in investment-grade and high-yield bonds changed hands each trading day last year, according to Crisil Coalition Greenwich, a provider of research and data for the financial services industry. That marked a record level, up from $46 billion in 2024, the latest in a string of records ...

Core Viewpoint - The financial sector is increasingly utilizing credit derivatives to manage exposure to risks associated with significant investments in technology, particularly in artificial intelligence and data centers. Group 1: Credit Derivatives and Risk Management - Trading of Oracle's credit default swaps surged to approximately $8 billion over nine weeks ending November 28, a significant increase from around $350 million during the same period last year [1] - The cost of protecting Oracle Corp. debt against default using derivatives has reached its highest level since the Global Financial Crisis, indicating heightened risk perception [5] - Banks are exploring various tools, including credit derivatives and sophisticated bonds, to transfer the risk associated with underwriting the AI boom to other investors [3] Group 2: Debt Market Dynamics - Global bond issuance has exceeded $6.46 trillion in 2025, driven by substantial offerings from major tech companies like Oracle, Meta, and Alphabet, which are expected to invest at least $5 trillion in infrastructure [4] - The urgency for banks to mitigate risk is evident in the credit markets, as they provide large construction loans for data centers, including a $38 billion loan package and an $18 billion loan for new facilities [7] - The size of recent debt offerings has escalated, with $30 billion raised for Meta in a single day, reflecting the growing scale of financing needs among hyperscalers [19] Group 3: Investment Opportunities - There are notable opportunities in selling protection on Microsoft and other tech companies, as their credit default swaps are trading at high spreads relative to their risk of default [11] - Morgan Stanley is considering significant risk transfer transactions to offload some of its exposure related to AI infrastructure loans, which could provide default protection for a portion of its loan portfolio [12][13] - Private capital firms are also looking to acquire banks' exposure in significant risk transfers tied to data centers, indicating a broader interest in managing tech-related credit risk [14]

Core Insights - Tech companies are preparing to borrow hundreds of billions of dollars for AI investments, prompting lenders and investors to seek protection against potential defaults [1] Group 1: Credit Derivatives and Market Activity - Demand for credit protection has more than doubled the cost of credit derivatives on Oracle Corp.'s bonds since September, with trading volume for credit default swaps tied to Oracle reaching approximately $4.2 billion over six weeks ending November 7, up from less than $200 million in the same period last year [2] - There is a renewed interest in single-name credit default swaps (CDS) among clients, particularly as hyperscalers have increased their borrowing and exposure [3] - The overall volume for credit derivatives tied to individual companies has increased by about 6% over the six weeks ending November 7, reaching approximately $93 billion compared to the same period a year ago [12] Group 2: Market Trends and Future Projections - Investment-grade companies are projected to sell around $1.5 trillion in bonds in the coming years, with significant recent bond sales tied to AI, including Meta Platforms Inc. selling $30 billion in late October and Oracle offering $18 billion in September [5] - Tech companies, utilities, and other AI-related borrowers have become the largest segment of the investment-grade market, displacing banks [6] - Some of the largest buyers of single-name CDS on tech companies are banks, reflecting their increased exposure to the tech sector [7] Group 3: Investor Sentiment and Concerns - There is a growing concern among money managers and lenders regarding the effectiveness of generative AI projects, with a report indicating that 95% of organizations are seeing no return from these initiatives [9] - Recent trading activity in credit default swaps for Meta Platforms Inc. and CoreWeave has increased, indicating heightened market interest following significant bond sales [10]