AI debt worries drive a surge in credit default swap trading

Investors are paying more to insure against defaults at Oracle, CoreWeave and Big Tech as AI borrowing balloons 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. 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.

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