Morgan Stanley: AI CDS basket trades ~45bp wider than CDX IG
MS says buying CDS protection "remains our preferred way of playing the AI story in the credit derivatives market."
The reason is not just a bearish default call.
MS expects "increasing needs for non-economic hedging to manage counterparty exposure," even in a benign scenario where AI investments are profitable and continue.
That is an important distinction.
The hedge bid can grow even if the capex cycle keeps working.
More AI financing creates more counterparty exposure, and that creates more demand for protection.
MS says buying CDS protection "remains our preferred way of playing the AI story in the credit derivatives market."
The reason is not just a bearish default call.
MS expects "increasing needs for non-economic hedging to manage counterparty exposure," even in a benign scenario where AI investments are profitable and continue.
That is an important distinction.
The hedge bid can grow even if the capex cycle keeps working.
More AI financing creates more counterparty exposure, and that creates more demand for protection.