A rebound in AI-related trading is restoring risk appetite in credit markets, bringing an end to the longest stretch of widening spreads on global investment-grade bonds in 20 months.
Credit traders said the rally spread into Asia on Wednesday, with yield premiums on investment-grade dollar bonds narrowing by at least 2 basis points, and Bloomberg indices pointing to the first back-to-back days of spread tightening in five weeks.
Data showed that global investment-grade bond spreads narrowed on Tuesday for the first time in 11 trading sessions, snapping the longest widening cycle since March 2025, when U.S. tariff policy roiled markets.
Whether this recovery can be sustained hinges on AI company earnings and Federal Reserve policy, as investors weigh strong economic growth and attractive yields against a surge in borrowing to fund AI infrastructure buildouts.
Data indicated that market demand has so far absorbed a record $1.76 trillion in U.S. investment-grade bond issuance this year.
SK Hynix, the world's second-largest memory chipmaker, reported better-than-expected earnings on Wednesday, lifting optimism toward the AI sector.
Investors are now awaiting results from Alphabet and Amazon, the two largest corporate bond issuers globally this year and central drivers of AI spending.
The Federal Reserve is also due to announce its policy decision later on Wednesday.
Institutions expect the Fed to hold rates steady at both this meeting and the December meeting, as the recent widening of credit spreads weighs on financial conditions.
Hyperscale technology companies may increasingly turn to equity markets to fund their AI ambitions, a signal that is also positive for credit markets.
Meta launched a $25 billion stock offering this week as part of its $98 billion equity financing plan, which could reduce its need to issue debt.
Mark Reade, head of Asia credit strategy at Mizuho Securities, said Meta's equity financing is a positive factor in the near term.
AI investment supports growth expectations, but its enormous funding needs also increase corporate bond supply.
The International Monetary Fund projects that global economic growth will rise from 3.1% this year to 3.4% by 2027, driven by AI investment.
Sarah Harrison and Noah Wise, portfolio managers on the fixed income team at Allspring Global Investments, wrote in a recent research note that growth remains resilient, with AI serving as both an engine of growth and a source of financing shocks.
Against this backdrop, we favor data centers with robust risk controls, regulated utilities, and the chip sector, while managing supply, concentration, and tail risks.
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