Demand for credit protection has surged as tech companies, particularly those involved in artificial intelligence, prepare to borrow significant amounts. This increased need for protection has led to more than a doubling in the cost of Oracle’s bond credit derivatives since September. The trading of credit default swaps (CDS) related to companies like Barclays has also seen a sharp rise, growing from under $200 million to approximately $4.2 billion recently.
Analysts observe renewed interest in single-name CDS as tech companies—now the dominant players in capital markets—seek to raise about $1.5 trillion in debt. Notable bond sales, including Meta’s $30 billion offering, highlight this trend. While trading activity in CDS remains small relative to anticipated debt issuance, it reflects the evolving landscape where tech firms increasingly influence the market.
Traders note that banks are major players in the single-name CDS market, hedging against their rising exposure to tech companies. There’s also a growing interest from equity investors seeking affordable hedges. However, as the tech sector has volatile historical trends—evidenced by the rapid obsolescence of companies—it’s critical for lenders and investors to manage their risk exposure effectively.
Overall, the total value of credit derivatives linked to individual firms has increased by about 6% year-over-year. Still, many in the industry believe that the current spike in CDS trading may be temporary, despite signs of growing activity and interest from various market participants.
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