A dense earnings season for technology giants combined with expectations of massive bond issuance is driving the cost of credit default swaps (CDS) to all-time highs.

Meta and SpaceX both reported earnings this week, and as tech companies move through their earnings disclosures and exit their "quiet periods," the market expects a new round of large-scale bond issuance to begin soon.

On Tuesday, Oracle's CDS, widely regarded by the market as a barometer of AI debt risk, rose intraday to as much as 343 basis points, setting a record high. Meta's CDS gauge also climbed to a record, rising 6.3 basis points intraday to 114.8 basis points.

SpaceX's five-year CDS also rose to an intraday record of 242 basis points on Tuesday morning, a sharp climb from roughly 111 basis points when active trading began in June.

Bond investors are proactively trimming existing exposure to the tech sector to make room for a potential large-scale supply shock.

According to estimates by Bank of America analysts, dealers net bought about $451 million of hyperscaler bonds on Monday, the highest single-day net buying volume since mid-September. The analysts believe this most likely reflects investors actively selling the bonds due to supply and demand concerns.

Lotfi Karoui, a multi-asset credit strategist at PIMCO, said in an interview:

"We have yet to identify some kind of landing range for the scale of bond issuance the market needs to absorb, and estimates still differ quite widely on how much debt capital this build-out will ultimately consume."

Expectations grow for Meta issuance after prior pledge not to issue again before the fourth quarter

Meta completed a $25 billion six-tranche bond sale in April this year, a landmark deal among recent dollar bond offerings by large technology companies. At the time, Meta signaled to investors that it would not return to the dollar bond market at least until the fourth quarter, a message aimed at boosting demand for the April offering.

As the fourth quarter approaches, however, market participants widely believe Meta will issue dollar bonds again this year to support ever-rising AI investment and spending targets. If it does, it would end a gap of more than two months in dollar bond issuance by large technology companies.

It is worth noting that Meta's third-quarter report this year is being released earlier than in previous years. The company will disclose results on October 21, rather than the last Wednesday of October as has been customary.

Jordan Chalfin, an analyst at CreditSights, noted in a research report last month that this timing could give Meta greater flexibility to complete a bond issuance after the earnings release and before the November midterm elections.

At the same time, Meta has been in communication with European investors about a potential euro-denominated bond issuance, reflecting the broader trend of hyperscale technology companies diversifying financing across multiple global markets.

CDS trading volume hits record as hedging demand surges

Uncertainty over the outlook for AI spending is spurring strong demand for credit hedging.

According to an analysis of trade repository data by Jigar Patel, a credit strategist at Barclays, CDS trading volume linked to the ten largest hyperscale cloud computing and chip manufacturers surged 691% in the first nine months of this year to a record $140 billion, compared with about $17.7 billion a year earlier.

Steven Kohlenstein, a fixed income portfolio manager at T. Rowe Price, said, "As AI-related issuance and financing needs continue to grow, investors are increasingly aware of the correlated exposures among various credits that were previously viewed as separate entities."

Riskier industry participants have been hit particularly hard, with technology infrastructure company CoreWeave suffering significant blows to both its share price and its bonds.

Macro and policy uncertainty suppress the pace of issuance

Although expectations for large-scale issuance are strong, actual issuance activity has recently cooled.

Macroeconomic uncertainty, elevated global interest rates and potential changes in the U.S. political landscape that could weaken industry policy support have combined to restrain recent willingness to issue bonds. The last large bond issuance by a major U.S. technology company came from Alphabet in August.

According to data compiled by Bloomberg, companies worldwide have issued more than $450 billion in bonds so far this year to fund AI build-outs.

Market participants widely expect large technology bond issuance to pick up after the year-end elections and to see an even more significant surge in 2027.

As for SpaceX, it is currently in talks with banks and investors about a $40 billion financing, intended for chip purchases from Nvidia.