Global credit markets are starting to sputter. Bloomberg reports that spreads on global corporate bonds widened about five basis points this week — the biggest weekly jump since March — leaving them at their widest in half a year. For the past year, corporate credit held firm even as sovereign debt slumped; now investors are pulling back, no longer treating high-grade debt as a safe haven.
The Bloomberg index shows spreads on global corporate bonds — nearly 60% of which were issued by U.S. companies — blew out about five basis points this week, the most since March and the widest in six months. The trigger is record borrowing colliding with inflation worries: when risk-free rates rise, corporate borrowing costs climb automatically, and if credit spreads widen at the same time, weaker borrowers get squeezed from both sides.
Stress is showing up first among the weakest borrowers, as it historically does. MarketWatch data shows spreads on CCC-rated debt — the lowest tier of junk — widened roughly 131 basis points over the past month, versus just 5 basis points for BBB-rated debt, the lowest investment-grade tier. The bond market is growing sharply more skeptical of leveraged, speculative borrowers while higher-quality corporate credit stays relatively calm.
AI is the biggest driver of the credit expansion. AI-related borrowing in U.S. leveraged finance has surged to roughly $88 billion this year, versus about $20 billion in early 2025 — more than a fourfold jump. Hyperscalers are expected to issue about $250 billion of debt this year, roughly 14% of total U.S. investment-grade issuance. U.S. investment-grade issuance already hit $1.4 trillion through August 21 and is expected to reach about $2 trillion by year-end, topping 2024's $1.3 trillion and 2025's $1.5 trillion — a record.
"The Big Short" investor Michael Burry escalated his warning on October 1 in a Substack chat: "The infrastructure for AI buildout is crumbling. CDS prices are moving out, loans and bonds are falling or not trading." Equity investors, he said, are largely ignoring the deterioration in credit. "It is creating a 2006, a whole year where everyone that wants to get in will have the opportunity to do so" — a reference to the widespread optimism before the subprime collapse. He added that he wants more leverage on his bearish bets, expecting the turn to come sooner than most think.
Burry is not alone. The Financial Times reports KKR is warning of growing credit-market risks from the AI borrowing spree; Fitch warns an AI market correction is emerging as a major global credit risk; Axios puts it bluntly: the global credit tightening is underway. Some perspective is warranted: high-yield spreads near 3.1 percentage points remain well below the 4.6 points seen at last year's "liberation day" peak — let alone the near-20 points of the financial crisis. Nowhere near crisis levels, but the direction has changed.
What to watch: if the jumbo AI debt pipeline keeps testing market capacity, spread widening could migrate from CCC up the ratings ladder. For smaller companies needing to refinance, every extra point of interest eats cash flow — forcing spending cuts, hiring delays, or worse.