Global Corporate Bonds Reach Record Yield

Global corporate bond premiums have risen to their highest level since May 2025, according to the Bloomberg index. On Friday, tensions affected both bonds and stocks in Asia: spreads on high-rated Asian dollar bonds reached their widest level since July last year, and key regional stock indices declined.

Premiums reached 129 basis points amid concerns about debt financing for artificial intelligence (AI) spending. Asian credit default swaps (CDS) widened by about 1.5 basis points to 78 at the opening of trading on Friday. CDS act as insurance against default, so a higher price indicates that investors see more risk.

The most significant movement was seen in Chinese debt: spreads in the technology sector widened by 3–5 basis points, while China's investment spreads widened to 5 points. In India and Korea, investment spreads widened by no more than 3 basis points.

Investors sought protection in US government bonds: Treasuries rose across all maturities, marking their best day in more than 2 years. Traders also actively entered Treasuries futures to close bearish bets and cover short positions.

Regional stock markets were under similar pressure. Japan's Nikkei 225 lost 1.72% from the previous close, reaching 61,825.26 by the end of the morning in Tokyo. KOSPI fell by 1.97% to 5,424.96. China's CSI 300 dropped by 0.70% to 4,008.12, although earlier in the session it fell to 3,958.14, a new 52-week low. This occurred the day after the index entered a bear market following 10 consecutive weeks of declines.

A significant portion of the sell-off is linked to concerns that AI debt financing will not yield profits quickly enough. In July, Bloomberg Macro View analysts noted an acceleration in the issuance of AI-related debt and warned that competition for capital would raise yields and widen credit spreads. Wider spreads, in turn, increase the cost of new borrowing for companies building AI infrastructure. Jurrien Timmer from Fidelity stated this week that the risk of an AI bubble lies precisely in debt; by that time, CoreWeave bond yields exceeded 15%.

The last time spreads were this wide was due to tariffs. After the US announced import tariffs on April 2, 2025, US investment spreads rose from 82 to 102 basis points by April 7. A 90-day pause was introduced on April 9, and by April 28, spreads had fallen to 89 points—still significantly above the lows of 60–70 points at the end of 2024 and the beginning of 2025.