Meta, Alphabet join credit-risk index as AI hedging demand soars

Meta, Alphabet and Microsoft joining an index of high-grade firms’ credit default swaps is another sign of investors increasingly hedging hyperscalers’ debt amid surging bond sales.

The trio are among those in S&P Dow Jones Indices’ CDX Investment-Grade Index effective Friday. Seen as a reading of perceived credit risk, a new version of the 125-company gauge is created every six months and allows investors to hedge against potential losses or to speculate on the creditworthiness of companies.

“The addition of the hyperscalers underscores not only how important these issuers have become to corporate credit markets, but also how much more active technology CDS have become,” Jigar Patel, a Barclays Plc macro credit strategist, told Bloomberg News. He added the move should make the CDX index “a better representation of the US corporate bond market and a better hedging tool.”


Hyperscalers are tapping global debt markets at a record pace to fund artificial intelligence infrastructure. That’s helped fuel a surge of interest in derivatives.

The swaps tied to single companies didn’t exist for many high-grade technology heavyweights a year ago. But they’re now some of the most actively traded US derivatives contracts outside of the financial sector, according to Depository Trust & Clearing Corp.

Oracle leads way

Oracle has the most-liquid investment-grade CDS, with average weekly trades of its default swaps topping $830 million, said Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices, citing DTCC data.

“A few years ago, I don’t think anybody would have predicted hyperscalers entering CDX investment grade,” Godec said in an interview. “They’ve become some of the most-relevant names in the market, and their inclusion is only going to improve the overall profile of the CDX IG index.”

The cost to protect its Oracle’s debt from default for five years started surging in September amid worries about AI-related spending, and in December first reached levels not seen since 2009.

S&P Dow Jones Indices — which became the index administrator after S&P Global acquired IHS Markit Ltd — announced the lineup change to the latest CDX index, series 46, last week.

It looks at a number of factors when rebalancing the index every March and September. That includes CDS liquidity, credit rating, the issuer’s debt stack as well as liquidity in the corporate-bond market, according to Godec. Firms that are cut to junk — such as Paramount Skydance Corp. after its recent downgrade — are removed.

The new constituents reset the index’s maturity and typically boost trading volume as traders shift to the new series that effectively becomes the so-called on-the-run index, Godec said.

Corporate-bond indexes, meanwhile, typically rebalance every month.