Saba Capital Sells AI Tech Credit Default Swaps

Saba Capital Management has sold credit default swaps (CDS) to banks and asset managers seeking to protect against potential losses from large technology firms. These lenders are hedging against debt accumulating on the balance sheets of companies such as Microsoft, Oracle, Meta, Amazon, and Alphabet, which are borrowing heavily to fund multi-billion-dollar artificial intelligence projects.

This activity represents the first time Saba Capital Management has sold hedging protection on several of these firms and the first time banks have requested such trades from the fund. Market data indicates a rise in risk perceptions, with Oracle and Alphabet CDSs reaching two-year highs, while Meta and Microsoft have also seen increases in recent weeks.

Market analysts offer differing views on the risk. Michael Hartnett of Bank of America identified AI hyperscaler corporate bonds as the best short. Conversely, other analysts note that credit risks for these firms remain low relative to other investment-grade sectors. Jim Reid of Deutsche Bank suggested the trend stems from concerns over a surprise surge in AI corporate bond supply and the use of CDS as general hedges for positive AI positions.