CoreWeave’s default swaps hit a record as the AI sell-off reaches credit

The AI build-out is increasingly paid for with borrowed money. Goldman Sachs has tracked nearly $600bn of AI-related debt supply this year. In late September it warned that heavy junk bond issuance was pushing spreads to their widest since April: the more bonds companies sell, the more yield they must offer to find buyers.

Demand was already thinning. In early August, Meta’s $12.5bn bond for a data-centre joint venture with BlackRock in El Paso drew only about $20bn of orders, IFR reported. Orders worth less than twice the amount on sale are thin for a deal of that size.

Some of the debt is hard to see. Moody’s estimates that the six largest hyperscalers, the giant cloud companies, have about $1.2trn of data-centre leases outstanding. About $820bn of that is not yet fully recognised on their balance sheets, and Moody’s has criticised how little the companies disclose about them.

That is why falling AI share prices matter to bondholders. A company like CoreWeave needs fresh borrowing to keep building, so when its shares slide, lenders ask whether that funding will stay open and at what price. The capital structure decides who loses first: shareholders take the first losses, but bondholders are lending against the same uncertain future revenue.

Follow the stress down the ratings scale. It ran from CoreWeave (B+) to Oracle (BBB-) to the largest tech companies, and it weakened at each step. Oracle is the name to watch. It sits one notch above junk, so one more downgrade would take it out of investment grade, and funds that may only hold investment-grade bonds could be forced to sell. A downgrade does not trigger CDS, though: protection pays out on a credit event such as a missed payment or a bankruptcy, and a rating cut is neither.

Spreads widened while Treasuries rallied. That combination is risk-off: investors bought safe haven government bonds and demanded more pay to hold company debt. A corporate bond’s yield is the Treasury yield plus its credit spread, so a falling Treasury yield can hide a widening spread inside an unchanged headline yield. Credit traders watch the spread for that reason.

Implied default odds are a price. The more-than-60% figure bakes in an assumed recovery rate and a premium for bearing the risk. It shows that sellers want to be paid a great deal to take on CoreWeave risk, and is a weaker guide to how likely a default really is.

Meta reports third-quarter results on Wednesday 21 October, an early test of whether big tech keeps spending on AI at the same pace. Then supply: one report expects the earnings-season pause in tech bond sales to end soon. The price investors demand for new AI deals will show whether this week’s widening is spreading into the primary market, where new bonds are sold.

For the stress itself, watch three gauges. First, CoreWeave: its 2031 notes, at about 80 cents this week, and its CDS, against the 1,194.5bp record. Second, Oracle’s CDS against its 288bp record. Third, the high-yield index spread against 323bp.

If AI names keep widening while the rest of the junk market holds, the market is repricing AI risk. If everything widens together, that is contagion: stress spreading to all borrowers.