Executive Summary
Every cycle has a moment when the instrument built to warn you stops working the way you expect. Last week, single-name default swaps on the largest AI spenders blew out to record levels, while the index investors use to hedge credit risk tightened. When the hedge and the risk move in opposite directions, it’s worth asking which one is telling the truth.
Records Across Tech Complex
The selling hit fast. Intel’s five-year CDS widened to a record 123.5 basis points on Oct. 30, its biggest one-day move since October 2022. Broadcom’s CDS rose about 10 basis points to a record 175.4. SpaceX jumped about 20 to 266.5. Alphabet climbed roughly five basis points to about 84, its largest increase since July.
Even the bluest of blue chips aren’t immune. As of Oct. 28, Barclays put Microsoft’s five-year CDS at 53 basis points, Alphabet’s at 80 and Amazon’s at 81. By Barclays’ count, the premium for AI-specific credit risk over CDX IG has jumped from about 10 basis points to 76 in six months, a more than sevenfold increase.
Trading activity confirms the move is real. The four-week average of weekly CDS volume is approximately $6 billion for hyperscalers and $3 billion for chipmakers. Those are year-over-year increases of roughly 740% and 1,900%, respectively.
Why the Index Isn’t Moving
The index tightening isn’t a contradiction so much as a matter of construction. CDX IG spreads risk across 125 names, and most of the companies in it aren’t funding a data center buildout with borrowed money. Concentrated pain in a handful of tech issuers gets diluted.
The same pattern shows up in cash bonds. The Bloomberg U.S. Corporate Index ended August at a 78 basis-point spread, exactly where it started 2026, even as spreads on 10-year-plus hyperscaler bonds widened. The tech sector now trades about two standard deviations cheaper to the broader corporate index. Investors who think they’re hedged with the index may be holding the wrong insurance policy.
Supply Is a Rates Story Too
Hyperscaler issuance has climbed from about $20 billion in 2024 to $136 billion in 2025 and $256 billion so far this year. The issuance of the five big hyperscalers plus SpaceX and Nvidia stands at $290.7 billion through August, close to the $321 billion of 10-year Treasurys sold over the same stretch.
That supply competes for the same duration buyers as the Treasury. It arrives while the 10-year yield is hovering near 5% after peaking at 5.32% in October, and as the Fed keeps a December hike on the table. Heavy corporate issuance, heavy Treasury issuance and sticky inflation make a tough combination for long-end demand.
The cash flow picture adds pressure. Three of the four major hyperscalers, Amazon, Meta and Alphabet, reported negative free cash flow last quarter. Amazon’s deficit was close to $35 billion. Companies that once funded growth from cash on hand are now borrowing heavily to do it.
What Position Do You Take?
First, don’t confuse index calm with sector calm. If you own investment-grade funds, check how much of them is now tech and AI-linked paper. Tech’s share of the global corporate aggregate index has climbed to 8.4% from 6.7% in May 2024.
Second, stay in the intermediate part of the curve. Long hyperscaler bonds carry both supply risk and duration risk at a time when the Fed hasn’t finished tightening. With all-in yields near 5%, investors don’t need to reach out the curve or down in quality to earn real income.
Third, watch the spread between single-name CDS and the index. If it keeps widening while CDX IG sits near its tights, either the index catches up or the single names retrace. I’d bet on the former before the latter.
The AI buildout may well pay off. But bond investors get paid to worry about the downside, and right now the most liquid hedge in the market isn’t reflecting it.
We want to hear your views.
If you hedge credit risk with CDX IG, does last week change how you think about that hedge?
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