$25 Billion AI Bond Issuance Reignites Focus on CPDO Cases

Before the 2008 financial crisis, the CPDO cases are gaining renewed attention in relation to the issuance of AI corporate bonds and the spread of leveraged ETFs. Richard Ryan, a bond vigilante, explained that CPDOs were structured products sold at high premiums despite receiving AAA ratings. CPDOs were designed to increase leverage as credit markets weakened, and currently, abundant liquidity and tight spreads are being observed. Researchers from the Federal Reserve noted in a 2010 analysis report that ABN Amro's first CPDO product, 'Surf', was structured in the summer of 2006. This year, the issuance of corporate bonds for AI infrastructure investment is testing the limits of investor demand, with Amazon's $25 billion long-term corporate bonds priced at about 120 basis points over U.S. Treasuries. The spread on corporate bonds in the technology sector stands at 89 basis points, higher than the overall investment-grade market. Leveraged ETFs are structured to amplify the daily returns of underlying assets, which can increase price volatility. South Korean semiconductor stocks are also not escaping this trend, and financial authorities have announced related measures. While there is no basis to conclude that the current market is facing a crisis similar to that of 2008, there are concerns about the shifting of risks.

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