Debt markets are sending a message to AI data center builders: we're hiking the interest rate on your credit card and may put some new curbs on your credit limit.
That analogy comes courtesy of Jefferies global head of equity strategy, Christopher Wood, who put it in a note on Friday: "The most plausible way the AI capex arms race will end is that the credit card will be taken away."
That isn't happening yet, but credit markets have been spooked by the new political landscape — seeing more hurdles to data centers under Democratic governors in key states, along with a Democratic-controlled Congress.
The poster child for debt stress is neocloud Coreweave. The yield on its 2032 bond with a 9.625% coupon has climbed above 16%. Corweave's five-year credit default swaps spiked above 1,289 basis points on Thursday, widening above their October peak, according to Deutsche Bank. The CDS eased 8% Friday to around 1,155.
"We've had plenty of warnings from the credit space," said Jim Reid, Deutsche Bank's global head of macro and thematic research, in a note on Friday. Debt and equities are now moving more in sync, he added, "so we'll have to see if credit goes any further."