Goldman says AI junk bond spreads hit record high

AI companies' borrowing costs are rising, and the stocks of "neocloud" providers are falling with them. US dollar high-yield AI-related debt spreads widened by 25 basis points between October 13 and 14 and hit a record 360 basis points over Treasurys, Goldman Sachs said in a note on Friday, October 16, according to Yahoo Finance. Spreads on non-AI debt widened by only two basis points over the same period and stayed below their March peak.finance.yahoo.com

The split shows investors questioning how the AI buildout gets paid for. CoreWeave ↘ 11.91% and Nebius ↘ 12.18% were each down about 15% over five days going into Friday, Yahoo Finance reported, and both closed sharply lower again that day.finance.yahoo.com

Neoclouds at the center

Goldman strategist Amanda Lynam said most of the widening was in AI-related corporate bonds and data center project finance. "We view AI-related corporate bonds, from either neoclouds or firms with significant frontier lab exposure, as being at the epicenter of the funding cost debate," she wrote. She said the move reflects "a reassessment of the economics of the AI buildout, particularly for lower-rated borrowers." Lynam expects "some near-term reversal" but said differences between AI issuers are "likely to remain high".finance.yahoo.com

CoreWeave's own debt shows the most strain. Its stock fell 15.5% on Wednesday, October 14. On Thursday, the yield on its 9.75% bond due 2031 reached 15.78%, and its five-year credit default swap spreads briefly rose above 1,140 basis points. Reuters reported that CoreWeave owes nearly $50 billion, citing LSEG data. Hotter-than-expected US inflation data this week raised bets on Federal Reserve rate hikes, which would make borrowing more expensive for companies building data centers.cnbc.com+2

Hedge funds take losses

The selloff also hurt hedge funds. Goldman's prime brokerage unit said global fundamental long-short funds, or stock pickers, lost money every day this week. Their losses for the week to October 15 came to 2.9%, which left them up 14.3% for the year. Asia-focused stock pickers lost 6.8% in the first half of October. South Korea's Kospi fell 8% on Thursday to a six-month low.reuters.com

Goldman said long-short managers have sold global AI stocks for six straight sessions. It also noted that from COVID through the end of 2025, all three broad hedge fund strategies never fell more than 80 basis points on the same day. That has now happened three times in 2026.ca.marketscreener.com

CoreWeave CEO Mike Intrator said in a memo that the company's contracted backlog is enough to cover its debt. The Evercore ISI trading desk saw it differently, saying the market is "basically saying 'no mas' to AI debt without operating cash flow support".finance.yahoo.com+1