AI debt fears flash red across credit as risk assets run for cover

Global corporate bond yield premiums climbed to their highest since May 2025, according to a Bloomberg index, reaching as much as 129 basis points as worries grew over debt-funded artificial intelligence (AI) spending. In Asia, the strain reached both bonds and stocks on Friday, while rising geopolitical tension pushed investors toward safer assets. Spreads on higher-rated Asian dollar bonds hit their widest since last July, and Asian credit moved in line with the global jump in corporate bond premiums.

Regional credit-default swaps (CDS) widened about 1.5 basis points to 78 at Friday’s open. CDS work like insurance against default, so a higher price means investors see more risk. Chinese debt saw some of the largest moves, with technology spreads 3 to 5 basis points wider and China’s investment-grade spreads widening by up to 5 basis points. Indian investment-grade and Korean spreads widened by as much as 3 basis points.

Investors seeking safety turned to US government bonds. Treasuries rallied across all maturities for their best day in more than 2 years, while traders rushed into Treasury futures to unwind bearish bets and cover short positions.

Japan’s Nikkei 225 fell 1.72% from its previous close to 61,825.26 by late morning in Tokyo. South Korea’s KOSPI posted a steeper 1.97% decline to 5,424.96 by late morning in Seoul, according to KOSPI Index Performance data from Google Finance. China’s CSI 300 dropped 0.70% to 4,008.12 in morning trade after touching 3,958.14 earlier in the session, a fresh 52-week low. The low came a day after the index entered a bear market following 10 straight weeks of losses.

Much of the selling in both stocks and bonds was linked to concerns about how companies are funding AI. Bloomberg reported that markets fear debt-fueled AI spending will not deliver profits quickly enough. In July, a Bloomberg Macro View analysis noted that AI-related debt issuance was accelerating and warned that competition for capital would lift yields and widen credit spreads. Wider spreads, in turn, raise the cost of new borrowing for companies building AI infrastructure. Fidelity’s Jurrien Timmer argued this week that any AI bubble risk lies in debt, and CoreWeave bond yields had climbed above 15% at the time.

The last time spreads were this wide, tariffs were the trigger. After the US announced sweeping import duties on April 2, 2025, credit spreads widened sharply. According to S&P Global, US investment-grade spreads jumped from 82 to 102 basis points by April 7. A 90-day tariff pause followed on April 9, and spreads eased to 89 basis points.