Investors Ramp Up AI-Linked Credit Default Swap Trading to Hedge Industry Debt Risk

Odaily Reports: Investors are racing to buy credit default swaps (CDS) to protect their portfolios against the bursting of the AI boom. This financial instrument, which rose to prominence during the global financial crisis, is now seeing trading volumes surge. A borrowing spree by companies to fund trillions of dollars in AI infrastructure spending has driven up demand for these "insurance-style" derivatives, which pay out if the referenced company defaults on its debt.

According to Morgan Stanley research, in September, CDS linked to bonds issued by Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom, and Nvidia traded at an average weekly volume of over $9 billion, up from less than $2 billion in July. Institutional data shows that year-to-date trading volume in the US corporate CDS index has already surpassed last year's full-year total. (Financial Times)