Yes, it’s time to put spreads – as in, credit spreads – back on your trading screens. That’s because worries about the cost of funding the AI boom are sending up yellow flags in the bond market.
Take a look at the MoneyShow Chart of the Day, which shows the ICE BofA US High Yield Index Option-Adjusted Spread. That’s a word-and-abbreviation salad, I know. But it’s basically the extra yield demanded by bond investors above and beyond underlying US Treasuries in the high-yield – or “junk” – part of the fixed income market.
High Yield Spreads Rising...Again
Source: FRED
This key spread just hit 325 basis points, up from a recent low of 260 bps. That’s not quite as high as the 346 bps we saw back in early 2026 when worries about private credit quality were bubbling up. But it’s enough to get the market’s attention.
This time the concerns are coming from the AI sector. Companies are spending hundreds of billions of dollars to build out the necessary infrastructure to power AI models and meet AI compute demand. A large chunk of that money is borrowed money.
That’s all well and good when bond buyers are in a carefree and confident mood. But when they start worrying about getting paid back, they demand more yield as insurance.
That drives up everyone’s cost of capital – and fuels losses in individual bonds and bond funds. The State Street SPDR Bloomberg High Yield Bond ETF (JNK) has slumped 3.6% in the last three months, for instance.
So far, the overall stock market is holding up because money is rotating into new sectors outside of tech – not leaving stocks entirely. The bulls will take heart in that, while the bears will say, “Just you wait.”
Me? I recommend you keep spreads on your screens. If the rise in borrowing costs continues, equities won’t be able to hang in forever!