AI debt worries drive a surge in credit default swap trading

Wall Street has found a new way to express doubts about the AI boom. Rather than shorting the stocks, traders are buying insurance on the debt. The numbers behind the hedge A credit default swap works a lot like a homeowner’s insurance policy, only for bonds. The buyer pays a regular premium. If the borrower defaults, the seller covers the loss. That premium is quoted as a spread in basis points, where 100 basis points equals one percentage point a year. A higher spread means the market thinks default is more likely. According to Morgan Stanley Research, CDS trading linked to companies including Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom and Nvidia averaged over $9 billion per week in September. In July, that figure sat below $2 billion. The broader market is moving too. US corporate CDS index volumes for 2026 have already surpassed the full-year total recorded in 2025, and the year is not over. CoreWeave in the spotlight The most dramatic readings belong to CoreWeave, the data-center operator carrying nearly $50 billion in debt. Its five-year CDS spread exceeded 1,100 basis points in mid-October. That level implies a default probability of around 63-64%. A year earlier, the ...