CoreWeave bond plunge sounds alarm, Fed may need to reassess rate hike pace.

October 20 — Bloomberg columnist Jonathan Levin wrote that the bond yield of AI cloud computing service provider CoreWeave once surged to 15% this month, while yields on US junk-grade and investment-grade corporate bonds also rose to their highest levels since 2025 and 2023 respectively, indicating that corporate financing costs are once again weighing on economic growth.

Over the past few years, US companies relied on long-term debt issued during the low-interest-rate era to withstand the impact of Federal Reserve rate hikes, but as debt matures and refinancing costs rise, the tightening effect of corporate credit channels is gradually emerging. CoreWeave relies on debt to purchase AI chips, expand data centers, and rent out computing power, and its financing model is particularly vulnerable to rising borrowing costs. Companies such as Oracle, Alphabet, and Meta are also facing upward pressure on financing costs.

The bigger risk lies in debt maturity pressure. In the Bloomberg US High Yield Bond Index, about one-quarter of constituent bonds will mature within the next one to three years, with refinancing pressure around 2028 particularly noteworthy. If credit spreads widen in a disorderly manner, it could trigger increased defaults, reduced corporate investment, and rising unemployment.

Levin believes that moderate credit tightening helps cool the AI capital expenditure boom, but if it escalates into an uncontrolled credit crunch, it could amplify downside risks to the economy. Therefore, he advocates that the Federal Reserve keep the interest rate range unchanged at 3.75% to 4% at its October policy meeting and carefully assess policy choices in December.