As companies borrow more for AI projects, investors are being forced to work harder to make sure they don’t have too much exposure to tech companies and utilities across their portfolios. Heightened concerns about a potential AI bubble are also expected to drive increased hedging activity in the credit default swap market, further boosting trading volumes, according to market makers.
Trading volume has been growing for years thanks to shifts like portfolio trading, which allow investors to buy and sell large blocks of securities in one fell swoop. Traders are adopting innovations long familiar to equities — such as fixed-income exchange-traded funds, electronic execution and high-speed trading strategies. Ignoring other factors, a more active trading market should help pull spreads tighter, as the illiquidity premium on bonds shrinks.
