HSBC strategists warn that credit bond investors should be cautious of potential downside risks associated with the artificial intelligence (AI) frenzy. Previously, the optimism surrounding AI technology had driven credit spreads down to their lowest levels in decades.
In a report, Song Jin Lee and Tom Russell noted that even in a strong macroeconomic environment, the upside potential for bond investors appears limited, particularly given that tech giants are issuing hundreds of billions of dollars in bonds, which could exert widening pressure on credit spreads.
The bank urged investors to consider diversification strategies and to appropriately avoid U.S. tech bonds, highlighting that certain credit bonds in the Eurozone have relatively low exposure to the AI cycle. The report added that Asian investment-grade credit bonds may be able to withstand risks associated with downward sentiment and volatility triggered by fiscal policy changes.
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