US credit-market stress is on the rise – with implications for an AI-driven growth cycle

Concerns about higher borrowing costs aren’t limited to the US government. For corporates, the question is increasingly whether refinancing bonds at higher yields will increase debt-servicing costs so much that investment will be constrained.

Corporations are still able and willing to tap public debt markets. But the first signs of stress are becoming visible. Corporate bond market distress indices compiled by the Federal Reserve Bank of New York have steadily moved higher, especially in recent weeks – approaching the peaks seen during the 2022 tightening cycle.

US growth has become more dependent on AI-related (and increasingly debt-financed) capital spending. If higher financing costs eventually constrain this investment cycle, tighter credit conditions could begin to spill over broader economic growth.