AI debt and French bonds face a stress test — why it may not be over

A protester waving a French national flag walks past a fire during clashes prior to the start of a demonstration to protest against the "high cost of living", in Marseille, southern France, on Oct. 17, 2026.

Thibaud Moritz | AFP | Getty Images

From AI companies financing data center projects to France's heavily indebted government, credit markets are flashing warnings as investors grow warier of borrowing risks.

Five-year credit default swap spreads have widened for CoreWeave, Oracle and SoftBank Group, as well as France and Italy, according to CNBC's analysis of FactSet data. 

AI-related bonds have been selling off as markets raise the cost of capital amid concerns of a financing crunch. Neocloud demand is "off the charts," Nvidia CEO Jensen Huang told CNBC on Thursday, but he warned of a "scarcity of capital." "The demand of the capital is much greater than the availability of the capital," he said, adding, "that's going to get solved."

Countries like France face a similar crunch. Pressure is building in bond markets as investors demand more compensation to finance public debt. Recent mass protests and rioting in France have heightened the market's concerns.

"Markets may no longer want to underwrite massive capex, heavy leverage, and uncertain future cash flows, and that same shift is widening French sovereign spreads as investors demand more compensation to hold long‑duration, debt‑financed obligations from a strained state,"  FedWatch Advisors CIO and founder Ben Emons wrote on his "French Neoclouds" Substack post.

Insurance costs rise for AI-linked debt

CoreWeave, Oracle and SoftBank are at the heart of the AI infrastructure buildout, spanning data centers, cloud services and financing.

Their five-year CDS spreads offer a window into investors' anxiety about the cost of it all and eventual payoff. Higher spreads mean more expensive default protection and can signal greater concern about a borrower's creditworthiness.

CoreWeave has experienced some of the sharpest increases in default-protection costs. Its five-year CDS spread reached 1,065.84 basis points on Oct. 21, according to FactSet, reflecting heightened concerns about the debt-heavy company's ability to finance its expansion.

At the same time Oracle's spread rose to 308.25 basis points on Oct. 21, up from 141 on Jan. 2. S&P Credit Ratings downgraded Oracle's debt to the lowest level of investment grade in July, citing the expanding infrastructure business raised the overall credit risk. 

Softbank is a major AI investor with a large stake in OpenAI and investments in data centers and power infrastructure, including an $87 billion commitment for data centers in France. Its five-year CDS spread stood near a four-year high of 432 basis points on Oct. 20, up from 284 basis points on Jan. 5. 

France's default-protection costs climb above Italy's

France isn't in a full-fledged debt crisis, but markets are signaling unease with the cost of protecting against a sovereign default rising above that of Italy's, which has also increased.

France's five-year credit default swap spread reached 89.8 basis points on Oct. 21, up from 29.74 basis points on Jan. 2, according to CNBC's analysis. Italy's spread increased to 67.1 basis points on Oct. 22 from 28.33 on Jan 2. France's budget uncertainty and debt burden have become a focus, raising concerns that the risk could spill over to other countries in Europe.

Germany's spread also rose but remained much lower at 12.15 basis points on Oct. 22, compared with 7.47 at the start of the period.

Thierry Wizman, global FX and rates strategist at Macquarie Group, pointed to France's mounting debt burden and persistent fiscal deficits as key drivers of rising default-protection costs.

"The key drivers are the large amount of French sovereign debt (120% of GDP) and the inability to reduce the deficit," Wizman told CNBC. In comparison to France, German government debt is 65% of the country's GDP.

Investors are also watching the spread between French and German bonds, considered the European benchmark of creditworthiness, which has also surged to 1.6 percentage points. France's 10-year bond yield also topped 5% for the first time since 2002. The spread between the 10-year yield on French OATs and German Bunds is the extra payment investors demand to hold French bonds instead of German.

While the Franco-German spread is relatively wide, the Eurozone saw far larger gaps in borrowing costs during the Eurozone debt crisis of the early 2010s.

France faces another test on Oct. 23 when Moody's is scheduled to review its Aa3 sovereign rating, which carries a negative outlook. The review comes as political divisions complicate efforts to repair the country's public finances.

Spillover effects to bond indexes

While stresses are popping up in some pockets of AI financing, debt markets are also pricing in higher costs. S&P Global warned on Oct. 19 that major cloud providers may have more AI-linked debt exposure than publicly recognized.

CDS indexes offer a broader picture of credit-market pressure by tracking default-protection costs across baskets of companies.

North America's CDX High Yield index captures credit risk across speculative-grade companies. Its five-year midpoint spread reached 355.35 basis points on Oct. 20, up about 39 basis points from the end of 2025, according to data from LSEG.

The widening suggests investors are demanding more compensation for credit risk beyond AI-linked borrowers.