Global credit markets face $1 trillion debt risk amid rising yields

Global credit markets face potential instability as approximately $1 trillion in corporate debt is trading at credit spreads wider than typical for their credit ratings. This figure includes roughly $580 billion in U.S. bonds and $400 billion in European bonds, specifically focusing on investment-grade non-financial corporate bonds with maturities exceeding three years.

Analysts suggest the disparity is driven by the rapid growth of technology ‘hyperscalers’ investing heavily in artificial intelligence infrastructure. These large tech firms now represent about 5% of the U.S. investment-grade bond index, doubling their weight from two years ago.

Simultaneously, economic indicators are drawing comparisons to the 1997 Asian financial crisis. Experts note similarities in the current environment, including rising U.S. Treasury yields and the significant weakening of the Japanese yen. While U.S. 10-year Treasury yields have risen significantly from 2020 lows, the yen has also depreciated by approximately 57% since early 2021, creating potential risks for regional growth and capital stability.