State Street warning: Prolonged high interest rates and AI raise concerns over a default cycle
State Street warned in a 7report that the global credit market could enter a default cycle as prolonged high interest rates coincide with increased investment in artificial intelligence (AI). It assessed that the market is not adequately reflecting the fact that credit spreads have narrowed to historically low levels.
State Street warned that the global credit market could enter a default cycle as prolonged high interest rates coincide with increased AI investment. The remarks drew attention because credit spreads and corporate default risks could directly affect investor returns.
Peter Hadjiza, a credit research analyst at State Street, 7analyzed the issue in a report released on the day in question (local time). The report presented warning signs based on recent inflationary pressures and investment flows.
The report particularly pointed out that credit spreads had narrowed to historically low levels. As a result, it concluded that the market was not adequately pricing in current credit risks.
The report warned that if central banks raise interest rates further after concluding that inflation is becoming entrenched, the prolonged credit cycle could be damaged. It noted that this could increase companies’ repayment burdens.
The report also pointed out that a sharp increase in large-scale investment related to AI is creating new inflationary pressures. It cited as an example the possibility that rising costs resulting from AI investment could spill over into labor and capital costs.
The report recommended that investors reassess current credit spreads and the interest-rate environment. The report’s publication date was 7and it was released as a credit research report by State Street.
Sources: 연합인포맥스
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