The hottest credit market since 2019 is surging with hidden currents! The frenzy of AI giants issuing bonds may cause a stock and bond market downturn.

The global credit market, centered around high-rated corporate bonds as well as high-yield corporate bonds (also known as junk bonds), is currently at its hottest state in the past 19 years. This has prompted warnings from some of the world's largest asset management companies, including Aberdeen Investment Management and The Pacific Investment Management Company (Pimco), urging caution in the hot credit market and the recently skyrocketing stock market. After all, the hottest times in the credit market often see sudden widening of credit spreads, leading to sharp drops in corporate bond prices and potential adjustments in the valuation of risk assets (stocks). According to the latest compiled data on cross-currency and all-rating bond indices from institutions, the yield spread of global corporate debt (a form of credit spread) has narrowed to 103 basis points, the lowest level since June 2007. This phenomenon usually occurs in the backdrop of strong economic growth prospects and major technological revolutions similar to the "Internet era". However, as corporate bond issuance scales up, especially with tech giants like Oracle, Microsoft, and Meta issuing record amounts of debt, this could lead to a significant widening of credit spreads. This optimistic and heated market presents a paradox. Fund managers don't want to miss out on corporate bond allocation opportunities, but they also have to accept that they are faced with increasing potential risks (such as unpredictable U.S. fiscal and tariff policies, geopolitical tensions, and the record-breaking debt issuance of industry leaders like Oracle in the AI computing sector, leading to sudden corporate collapses), making potential returns and risk compensation scarcer. "In the risk market, 'complacency' should be the most frightening word at the moment," said Luke Hickmore, the Head of Fixed Income Investments at Aberdeen Investment Management. "All you can do is not to bet too heavily on high-risk credit bonds." Many fund managers are still jumping on this uptrend, partly due to market expectations that the Federal Reserve and some other central banks will continue to lower interest rates. This loose policy environment may help the global economy cope with the ongoing threat of tariffs initiated by U.S. President Donald Trump. Earlier this week, the World Bank raised its global real GDP growth forecast to 2.6%, highlighting the optimism around the AI boom strengthening global economic growth resilience and the prospects of a soft landing for the U.S. economy under the Trump administration's "big and beautiful" policies. Within the central bank system, policymakers must balance maintaining this growth momentum with efforts to prevent inflation from accelerating again. Amid the U.S. Justice Department's investigation into Federal Reserve Chairman Jerome Powell, this delicate balancing act has come into the public spotlight. The Fed chair has stated that the threat of criminal charges stems from the Fed setting rates based on best assessments, rather than following the Trump administration's push for more rate cuts. However, the current optimism in the credit market has also driven greater risk in debt assets. The spread required by investors to hold junk bonds has reached its lowest point in nearly two decades, reflecting the market's increasing optimism about economic growth prospects and decreasing default expectations for high-yield corporate bonds. Beware! The issuance frenzy led by tech giants like Oracle may widen credit spreads "The strong recent investment returns have actually heightened the market's 'complacency' sentiment," wrote senior analysts Tiffany Wilding and Andrew Balls from the fixed income investment giant The Pacific Investment Management Company (Pimco) in a research report this month. It is understood that the fixed income team at Pimco is becoming more selective in its deployment of funds in the credit market, anticipating a deterioration in credit fundamentals and spreads. Undoubtedly, as tech companies, led by Oracle, increase their debt issuance to support their massive investments, this trend could significantly widen credit spreads in the market. In fixed income analysis, credit spreads are seen as important "early warning signals" of risk appetite and economic expectations; therefore, when credit spreads widen, it often indicates that investors are more cautious about credit risks, requiring higher compensations, ultimately leading to a significant rise in market risk aversion. The current surge in corporate bond issuance (especially speculative and high-yield bonds) is expected to continue setting record highs in 2026, with large U.S. tech companies and companies related to AI computing infrastructure leading the way in bond issuance (such as Amazon AWS, Meta, Oracle, CoreWeave, etc.)this indicates a significant demand for cheap funds in the market. Large debt supplies can be absorbed by the market under low spreads and optimistic sentiment towards AI, but if faced with interest rate changes, economic slowdown, or rapid deterioration in the fundamentals of these tech companies, or a crisis much more severe than the "AI bubble" in November, all types of corporate bonds will become more sensitive, prone to valuation adjustments or drops. According to Dealogic data, by the first week of December 2025, global tech companies had issued a record $428.3 billion in bonds in 2025. U.S. tech companies alone issued $341.8 billion in corporate bonds, while European and Asian tech companies issued $49.1 billion and $33 billion, respectively, reaching historical highs in bond issuance for all three major markets. For tech giants like Oracle, the global leaders in cloud computing services, they not only face interest rate pressures but also structural risks due to their high dependence on one major client (such as OpenAI). John Stopford, Head of Multi-Asset Income at Ninety One, pointed out that as the borrowing frenzy and new bond supply surge emerge, the rising cost of borrowing will directly squeeze profit margins, potentially bursting the market's over-optimistic imagination of the AI boom. Institutional data compiled this year showed that global corporations issued approximately $435 billion in bonds in the first half of January, setting a new historical record for this period, a third more than the same period last year. Goldman Sachs raised $16 billion through the largest investment-grade bond issue in history on Thursday, making it the largest debt issuance in the history of Wall Street banks, leading many analysts to predict that 2026 will be a record year for bond issuance. So far, the sharp increase in bond supply has not triggered significant retractions or widening of credit spreads. This has led to a strong start to the global stock and bond markets in 2026, continuing the excess returns of investment-grade and junk bonds relative to 10-year U.S. Treasuries over the past three years. However, if other risks (such as a new round of the AI bubble crisis) break out later, shattering the market's optimism, the massive debt supply could trigger panic among investors. If credit spreads suddenly widen, it could lead to a downturn in stock markets Since the "AI bubble talk" swept global financial markets at the end of October, coupled with the debt frenzy among U.S. tech giants like Meta, Amazon, and Oracle since the second half of 2025, and the signs of panic and liquidity pressure in the private credit markets, lenders to top-rated global corporations are being scared off, potentially significantly raising financing costs and dealing heavy blows to global corporate profits, adding new selling pressures to the already tense credit market. The core of market anxiety is centered around the investment logic of AI itself. The increasingly exaggerated "AI circular investment" led by ChatGPT developer OpenAI, as well as the unprecedented borrowing spree by giants like Oracle to drive AI data center construction, is endangering financial fundamentals, causing the market to increasingly worry that the "AI bubble is about to burst". After all, most investors temporarily do not believe that OpenAI, with annual revenue of less than $20 billion, can bear $1.4 trillion in AI infrastructure expensesdespite the fact that OpenAI is capable of continuously raising tens of billions of dollars in financing, the market still places more emphasis on actual revenue. Over time, concerns about the "AI bubble forming and nearing rupture" are continuing to escalate in the market. This sentiment is beginning to reflect in mainstream institutional views. For example, Pimco has warned the credit market not to become complacent, and a recent report from Goldman Sachs shows that large tech companies that are investing the most funds in hope of winning the AI equipment race may face highly uncertain rates of return for a considerable period. In the context of the heated competition for AI computing infrastructure, even cash-rich high-rated tech companies have to resort to large-scale debt issuance to support related investments. Morgan Stanley predicts that by 2028, the total investment in super-large-scale AI data centers globally would be around $2.9 trillion, of which over half (approximately $1.5 trillion) will rely on external financing. This almost gambling-like capital expenditure has put immense pressure on previously stable balance sheets, prompting bond market-savvy investors to reassess the default risks of tech companies like Oracle. Narrow credit spreads typically signal strong market confidence in the economy and corporate debt repayment ability, but it also leaves the market extremely limited risk-buffering space. Once market risk appetite suddenly turns negative, the rapid deterioration of the fundamentals of large debt-issuing tech companies like Oracle, or the tightening of bond market liquidity due to record debt issuances, can easily widen spreads, indicating a sustained drop in bond prices. A sudden widening of spreads often indicates that riskier assets like stocks, cryptocurrencies, etc., may face pressure to correct. This logic is a standard risk reassessment path in market risk frameworks, not a baseless panic prediction, based on the reasonable concerns about the historical relationship between bond and stock markets.