The correction in bond prices linked to artificial intelligence (AI) projects has become the most visible sign of the pressure facing the US credit market.
Since September, large technology companies such as Amazon, Alphabet, Meta and Oracle have placed nearly $90 billion in debt to finance AI-related infrastructure.
However, several of these issues began to trade below their initial value, reflecting a widening of spreads and a greater demand for risk premiums by investors.
Adding to this movement is the issuance of more than $7 billion by higher-risk data center developers, whose speculative-grade bonds also face weaker prices.
The accumulated volume of debt has increased market caution, which is evaluating whether the expected return on investments in AI will be sufficient to sustain this financing rate.
Variable income
While credit tightens, US equities showed the opposite behavior. Technology stocks led a rebound driven by growing optimism that the Federal Reserve could cut its benchmark rate in December.
According to the latest futures market readings, the probability of a 25 basis point cut went from around 40% to almost 77% in a single week, following more dovish statements from two Fed members.
The S&P500 advanced 1.57%, the Nasdaq rose 2.65% and the Dow Jones closed with an advance of 0.65%.
The recent decline in Treasury yields and expectations of a looser monetary environment have bolstered demand for growth stocks, particularly in the technology sector.
This rally, however, coexists with signs of vulnerability: the lack of complete economic data due to the partial shutdown of the US government and uncertainty about the strength of consumption could limit the magnitude of the stock market advance.
The divergence between the bond market and the stock market highlights a scenario marked by opportunities and risks. While the potential rate reduction opens a window for risk assets, the pressure in the credit market reveals that the financing of the AI boom is beginning to show limits.
Investors are closely monitoring both fronts, aware that a correction in credit could quickly pass through to equities.
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