AI hype vs risk reality: UBS warns of a tail-risk crunch if rapid AI disruption hits hard. It does NOT look pretty! 😨
📉 US HY, leveraged loans, and private credit could swing to 3–6%, 8–10%, and 14–15% defaults.
=> Think dot-com/financial crisis vibes, but with private credit exposure to software/services.
📈 When spreads widen, 160–170bp IG, 575–675bp HY, 800–900bp LL aren’t fantasies—they’re risks.
🧊 Credit would dry up (50–75% YoY issuance drop).
🏦 Financials will be hit via several channels, including NFBI loans ($2.5tn incl. undrawn). In UBS see ~$1.6–1.8tn drawn, with ~30–40% tied to higher-risk private equity/credit/BDCs and SPVs/CLOs/ABS.