Analysis: UBS Warns AI Disruption Is Spreading Into Credit Markets, Forecasting Up to $120 Billion in Defaults
The artificial intelligence revolution has already laid waste to software stocks over the past several months, erasing hundreds of billions of dollars in market capitalization from once-invincible names like Salesforce, ServiceNow, and Workday. Now, according to a stark new warning from UBS, the carnage is about to spread into a far less visible but potentially more dangerous corner of the financial system: the $3.5 trillion leveraged loan and private credit markets. Matthew Mish, UBS's head of credit strategy, told CNBC this week that his team has rushed to update their forecasts after the latest AI models from Anthropic and OpenAI accelerated the timeline for industry disruption. His baseline scenario calls for $75 billion to $120 billion in fresh defaults across leveraged loans and private credit by the end of 2026 — a figure that could double in a tail-risk scenario he describes as a potential "credit crunch" in loan markets. The warning arrives at a particularly delicate moment for financial markets. The Federal Reserve has cut its benchmark rate from 4.33% to 3.64% over the past year, yet credit spreads are widening rather than tightening — an ominous signal that the traditional monetary policy toolkit may be insufficient to address a structural, technology-driven repricing of corporate risk.