The cost to insure

Credit markets are sending an interesting signal. Historically, 5-year CDS spreads for technology companies and banks moved broadly together. A CDS spread is simply the annual premium investors pay to insure against a company’s default: the wider the spread, the higher the perceived credit risk.
That relationship has now broken. Bank CDS remain relatively calm while technology CDS have widened sharply. The reason appears sector-specific rather than systemic: AI is turning parts of Big Tech into a much more capital-intensive business, with huge investments in data centres, infrastructure and related financing. Credit investors are increasingly questioning whether the returns on this spending will justify the additional capital committed.
Banks, by contrast, enter this cycle with stronger capital, liquidity and profitability than in previous crises.
Equity markets continue to price the upside of AI. Credit markets are starting to price more of the risk.