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AI Debt Hedges Hit Records: Meta CDS at 108 Basis Points
Investors are buying credit default swaps to hedge the AI borrowing boom. Meta's five-year CDS hit a record 108 basis points and weekly trading jumped to $9 billion.
The bond market's insurance against AI going wrong has never been more expensive. Five-year credit default swaps on Meta Platforms rose to 108 basis points in October, a record, and those on Nvidia reached 101 basis points, also a record, Yahoo Finance reported on October 25. A CDS is a contract in which the buyer pays a yearly premium to be compensated if a borrower defaults, so a spread of 108 basis points means paying about $108,000 a year to protect $10 million of Meta debt for five years.
Volumes have exploded along with prices. According to Morgan Stanley research cited in the report, trading in CDS on bonds issued by Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom and Nvidia averaged more than $9 billion a week in September, up from less than $2 billion a week in July. The reason is supply: about $466 billion of AI-linked debt has been issued so far in 2026, against $101 billion in the same period of 2025. "CDS has become a key bellwether of investor sentiment towards hyperscaler funding and the broader AI trade," said Manish Kabra, head of US equity strategy at Société Générale.
The spreads also show how differently the market ranks the borrowers. Oracle's CDS traded at 322 basis points, up from 144 at the start of the year. CoreWeave, the most indebted of the neoclouds, was quoted around 1,090 basis points; at that level, protecting $10 million required about $1.82 million upfront plus quarterly payments of $125,000. For Meta and Nvidia, companies with large cash flows from outside AI, the record levels are still low in absolute terms. For the smaller, specialised borrowers, the market is pricing a meaningful chance of distress.
There is a catch for investors who hedge with broad indexes rather than single names. Bloomberg reported on October 30 that the most popular CDS indexes have failed to reflect the surge in risk premiums on corporate bonds tied to AI debt, so investors using them to offset portfolio losses are getting less protection than they expect. Index hedges are cheap and liquid, but they spread risk across dozens of companies, and the stress has been concentrated in a few large issuers.
The rise in hedging is not in itself a forecast of default. Part of the demand comes from banks and bondholders protecting large new exposures, and spreads on Meta fell after it announced plans to raise $95 billion in stock, which reduces its need to borrow. But CDS markets react faster than credit ratings, and Polus Capital's chief investment officer Robert Dafforn summed up the worry behind the buying: "You know there is going to be a lot of misallocation" of capital. Watching single-name spreads alongside earnings is now one of the quickest ways to see how lenders, not just shareholders, are judging the AI build-out.
Sources: Yahoo Finance — Why Are Investors Buying Credit Default Swaps to Hedge AI-Related Debt? (Oct 25, 2026); Bloomberg — Credit Market's Most Trusted Hedges Are Breaking in AI Era (Oct 30, 2026)