A surge in AI-driven borrowing and mounting strains in private credit are prompting major global investors to pull back from investment-grade (IG) corporate bonds, raising the risk of higher funding costs and pressure on corporate earnings.
Global markets have sold off 2.7% this month, as concerns grow about AI overinvestment, delayed U.S. economic data, and broader risk sentiment. While IG bonds remain near historically cheap borrowing levels, investors managing over $10 trillion say spreads no longer reflect rising risks.
Why investors are stepping back
- Jamie Dimon warned of hidden “cockroaches” in credit markets.
- Tech giants have issued $75B in IG debt in September–October alone to fund AI data centers.
- Blue Owl’s withdrawal freeze sent shockwaves through the $3T private credit market.
IG spreads remain extremely tight:
- U.S. IG spreads: ~84 bps, only 10 bps above 27-year lows.
- Europe IG spreads: ~84 bps, barely above October’s 75 bps.
Major investors turning cautious
- Brandywine Global ($1.7T AUM): taking profits, overall cautious on credit.
- Fidelity International: short IG credit, calling valuations “too rich.”
- Ninety One: cut credit exposure to zero.
- Russell Investments ($900B advised): clients see little upside at current prices.
Rising hedging costs & early stress signals
- Oracle’s 5-year CDS has jumped 44% in a month to 87 bps.
- Private credit funds are seeing outflows, adding pressure on corporate borrowing costs.
Analysts warn that a feedback loop is forming:
Higher borrowing costs → weaker profits → lower equity valuations → more credit stress.
With delayed U.S. labor data adding uncertainty, asset managers say IG credit is now “expensive with very little cushion” — leaving markets vulnerable if economic conditions deteriorate.