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Another source of demand for the derivatives: equity investors looking for a relatively cheap hedge against the shares dropping. Buying protection on Friday against Oracle defaulting within the next five years cost about 1.03 percentage point, according to data provider ICE Data Services, or around $103,000 a year for every $10 million of bond principal protected. In contrast, buying a put on Oracle’s shares falling almost 20% by the end of next year might cost about $2,196 per 100 shares as of Friday, amounting to about 9.9% of the value of the shares protected.

There is good reason for money managers and lenders to at least look at cutting exposure now: An MIT initiative this year released a report indicating that 95% of organizations are getting zero return from generative AI projects. While some of the biggest borrowers now are companies with high cash flow, the technology industry has long been fast changing. Firms that were once big players, such as Digital Equipment Corp., can fade into obsolescence. Bonds that seem safe now may prove to be considerably riskier over time or even default, if profits from data centers fall short of companies’ current expectations, for example.

Credit default swaps tied to Meta Platforms Inc. began actively trading for the first time late last month, after its jumbo bond sale. Derivatives tied to CoreWeave have also started trading more actively. Its shares tumbled on Monday after the provider of AI computing power lowered its annual revenue forecast due to a delay in fulfilling a customer contract.

In the years before the financial crisis, the high-grade single-name credit derivatives market saw more volume than today, as proprietary traders at banks, hedge funds, bank loan book managers, and others used the products to cut or boost their risk. After the demise of Lehman, trading volume in single-name credit derivatives dropped, and market participants say it’s unlikely it will return to pre-financial levels. There are more hedging instruments now — including corporate bond exchange-traded funds — plus credit markets themselves have become more liquid as more bonds trade electronically.

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Sal Naro, chief investment officer of Coherence Credit Strategies, sees the recent increase in single-name CDS trading as temporary. His hedge fund has $700 million in assets under management.

“There’s a blip in the CDS market right now because of the data center build out,” said Naro. “Nothing would make me happier than to see the CDS market truly be revived.”

But for now, activity is on the rise, traders and strategists at banks said. The overall volume for credit derivatives tied to individual companies has increased by about 6% over the six weeks ended Nov. 7, to about $93 billion, from the same period a year ago, according to Barclays’ Patel, who analyzed the latest trade repository data.      

“Activity has picked up,” Dominique Toublan, head of US credit strategy at Barclays, said in an interview. “There’s definitely more interest.”

Week In Review

• Annual US investment-grade corporate bond sales hit their second-highest level ever, as companies capitalize on lower borrowing costs to refinance debt, fund acquisitions and invest in AI.

  • Separately, sales of asset-backed securities in the US have hit $337.9 billion so far this year, compared with $337.5 billion for all of 2024, according to data compiled by Bloomberg News. That’s the highest on record for data going back to 2014.

  • Sterling junk loans are having a record year with £21.2 billion ($27.9 billion) of issuance so far, according to Bloomberg-compiled data.

  • Global sales of debt labeled for environmental, social and governance purposes has declined for the first time since 2022.

• First Brands founder Patrick James ordered members of the finance department to transfer hundreds of millions of dollars of corporate cash to his personal bank account, a family trust and various businesses he controlled, the company’s new chief executive said during testimony in bankruptcy court on Monday.

  • The auto parts supplier is seeking to raise new financing backed by receivables invoices, reviving a tool that was once crucial to its operations but also had a hand in its demise.

  • A joint venture between Norinchukin Bank and Mitsui & Co. more than doubled its estimated loss from debt linked to First Brands, underscoring the widening global fallout.

  • A group of First Brands creditors is demanding new, independent advisers for company units that issued nearly $2.5 billion in off-balance-sheet debt, claiming conflicts of interest threaten to disrupt the sprawling insolvency case.

  • The record number of Americans falling behind on car payments is stoking concerns that more pain is in store for subprime auto lenders, following the recent high-profile collapses of Tricolor Holdings and PrimaLend Capital Partners.

• Applied Digital Corp. sold $2.35 billion of junk bonds at one of the steepest discounts of the year as the deal struggled to generate investor demand.

• The value of banks’ synthetic securitizations has surpassed $670 billion, expanding at a double-digit pace as lenders race to offload risk and free up capital.

• Two of the biggest power companies in the US — Duke Energy Corp. and Xcel Energy Inc. — have had talks with private credit lenders about raising money in what would be a first for utilities.

• TPG Inc. is in advanced talks to acquire Pike Corp. in a deal valuing the infrastructure services company at more than $5 billion including debt.

• BlackRock Inc. deemed the private debt it had extended to Renovo Home Partners to be worth zero as of last week, a drastic revision from its previous assessment of 100 cents on the dollar.

• Bank of America Corp. pulled a $785 million junk bond offering for Platinum Equity-owned Centerfield Media, which is now turning to private credit for a make-or-break refinancing deal.

• Chinese developer Country Garden Holdings Co. is planning to issue as much as $13 billion of mandatory convertible bonds, as it moves ahead with one of the nation’s biggest-ever restructurings amid a real estate crisis that sparked record defaults.

On the Move

• RBC Capital Markets is bolstering its debt capital markets team, hiring two managing directors from rival banks Barclays Plc and UBS Group AG, namely Will Oberrender as head of industrials and health-care coverage, and Jay Anderson to lead financial institutions group coverage.

• Mesirow Financial Inc. is boosting its investment-grade sales business with the hiring of Peter Swerz, who previously worked for Jefferies LLC.

• CVC Capital Partners has started a platform to compete in the booming world of credit secondaries, the market for trading stakes in private credit funds.

–With assistance from David Marino.

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