Global Corporate Bond Credit Risk Hits 17-Month High Amid AI Investment Bubble Fears

Concerns about overheated investment in the artificial intelligence (AI) industry, combined with geopolitical tensions in the Middle East, have pushed credit risk in the global corporate bond market to its highest level in about one year and five months.

Reuters-Yonhap News

According to Bloomberg News on Oct. 23 (local time), credit spreads on global corporate bonds widened to as much as 129 basis points (1 bp = 0.01 percentage points), based on the Bloomberg index. This is the highest level since May 2025.

A credit spread is the difference in interest rates between a corporate bond and a benchmark bond, such as a government bond. It represents the additional yield investors demand in exchange for taking on the risk of a company's default. A higher spread indicates stronger risk aversion in the market.

As AI companies have recently borrowed massive sums to expand investment in infrastructure such as data centers, doubts have grown about whether they can generate returns commensurate with that investment. With tensions in the Middle East also escalating, investors are reducing their exposure to riskier assets and moving into safe-haven assets.

This trend has also emerged in Asian and European corporate bond markets. Credit spreads on U.S. dollar-denominated corporate bonds issued by high-grade Asian companies widened to their highest level since July 2025. Spreads on European investment-grade corporate bonds also rose to their highest level since May 2025.

As market unease spread, the Export-Import Bank of Korea reportedly postponed the issuance of yen-denominated bonds. Credit default swap (CDS) spreads in Asia also rose, heightening concerns about corporate credit risk.

Norbert Ling, head of Asia-Pacific fixed-income portfolio management at Invesco, maintained a positive stance on credit assets overall, saying, "Wider spreads offer greater compensation to investors who take on the credit risk of high-quality companies."

By contrast, Lakshmanan R, head of Asian corporate credit at CreditSights, said, "I see this as the beginning of a more sustained period of credit risk repricing." He recommended increasing holdings of cash and short-term money market instruments and focusing on senior debt issued by banks and financial companies.

This content was produced with the assistance of AI translation services.