Global credit spreads widen due to AI investment concerns... Highest level in 17 months

(New York = Yonhap News) Correspondent Kim Yeon-sook = As investors' preference for safe assets strengthened due to concerns about the artificial intelligence (AI) bubble and heightened tensions in the Middle East, global corporate bond credit spreads widened to the highest level in 1 year and 5 months.

According to Bloomberg News on the 23rd (local time), global corporate bond credit spreads rose to the highest level since May 2025 based on the Bloomberg index. The spread expansion of some indicators reached up to 129bp (1bp = 0.01% point).

Credit spread refers to the difference in yield between the interest rates of bonds with credit risk and the bonds that serve as a comparison standard. In the corporate bond market, it is usually measured as the difference in yield between corporate bonds and government bonds with similar maturities.

It can be seen as the additional rate of return that investors demand in return for taking on credit risk, and the widening spread suggests that investors' risk aversion has become stronger or that market conditions have worsened.

This trend also appeared in Asia and Europe.

The credit spread of dollar-denominated corporate bonds issued by Asian blue-chip companies widened to the highest level since July 2025.

As market volatility increased, the Export-Import Bank of Korea postponed the issuance of yen-denominated bonds, Bloomberg reported.

The credit default swap (CDS) spread in Asia also widened by 2bp at one point during the day's trading, but later decreased to 1bp.

CDS is a derivative product that deals with the default risk of bond issuers, and the expansion of CDS spreads indicates that the credit risk evaluated by the market has increased.

In Europe, the credit spread for investment grade corporate bonds rose to the highest level since May 2025.

Behind the market instability are doubts about the profitability of the AI ​​industry. As AI investments accompanied by massive borrowings are rapidly increasing, concerns are growing over whether technology companies will be able to reap income commensurate with the size of their investments, leading to a sell-off in related stocks.

Geopolitical tensions in the Middle East also stimulated investors' risk aversion.

“Credit risk now dictates market trends,” said Gary Ng, senior economist at investment bank Natixis. “Asia cannot avoid this shock either.”

Some in the market say that the widened spread could be an opportunity to invest in high-quality corporate bonds.

Norbert Ring, head of Invesco's Asia-Pacific fixed income portfolio management, still maintains a positive stance on credit assets in general and said, "widening spreads provides higher rewards to investors who bear the credit risk of high-quality companies."

On the other hand, Lakshmanan R, head of Asia corporate credit at CreditSights, said, "I believe this is the beginning of a phase in which credit risk reevaluation is more continuous," and recommended increasing the proportion of cash holdings and short-term financial products and paying attention to senior bonds of banks and financial companies.