By Harry Robertson and Dhara Ranasinghe
LONDON, Nov 9 (Reuters) - A rout in technology stocks as confidence in the AI trade falters could test the resilience of global financial markets from New York to Taipei.
The tech-heavy Nasdaq 100 rose just over 1% on Friday but still ended the week down 5% and traders remain on edge.
Policymakers have long warned of the risks from an AI boom unraveling. Investors and regulators are keeping a close watch on market stress indicators, with some flashing amber, although not yet red.
Here's a look at how key measures are faring:
FEAR IS UP
Wall Street's fear gauge, the VIX index of US stock market volatility, rose to over 28 on Thursday, its highest since late March. It closed at just over 25 on Friday.
The increase is relatively contained compared to the post-April 2025 "Liberation Day" market jump and the August 2024 market selloff.
Still, the VIX surged over 30% last week.
The European equivalent hit its highest level since May on Friday.
"It's still early days," said Idanna Appio, a portfolio manager at First Eagle Investments. "My concern would be if we see more spikes in volatility, more stress, real issues with the ability to access markets. Those will be the things that...I'll be watching."
PROTECTION FROM TECH TREMORS
Perhaps the biggest harbinger of potential trouble in the AI space is a surge in insurance protection against a debt default.
The cost of insuring debt issued by neocloud firm CoreWeave has spiked into distressed territory, with five-year credit default swap (CDS) spreads surging past 1,000 basis points to record highs. It has become a barometer of investor anxiety over AI.
Spreads on credit default swaps for SpaceX and Intel also jumped last week.
The premium investors demand to hold US high yield corporate credit, known as junk bonds, has risen to its highest since the Liberation Day ructions as traders cool on riskier assets.
In the riskiest parts of the market, for companies rated CCC or lower, that premium is trading at around its highest since 2020, according to ICE BofA indices.
INVESTORS SEEK SAFETY
A flight to safe havens is a clear sign of increased market angst, although daily moves are also relatively modest.
US 10-year Treasury yields have fallen 50 bps from peaks above 5% hit last month on concerns about high debt, rising inflation and competition for capital as tech firms ramped up bond sales.
Currency markets were relatively muted, but there were some signs of investors seeking the US dollar, which on Friday rose almost 0.8% in its biggest one-day jump since June.
Three-month euro cross-currency basis swaps, or the relative premium for swapping foreign currencies into dollars, briefly touched -8 bps on Thursday, the lowest since late 2023, signaling increased demand for dollar funding. It had recovered to around -3.5 bps by Monday.
BofA's Flow Show report on Friday said cash funds saw a $140 billion inflow in the week to Wednesday, the seventh biggest on record.
BONDS BEHAVE
Bond markets are so far showing no signs of the sort of stress they came under during the COVID-19 pandemic or around the Liberation Day tariffs.
The closely watched MOVE index, which tracks volatility in the US Treasury market, hit a six-month high in October but has since slipped back.
Other bond-market measures such as US swap spreads, which can indicate funding and liquidity stress, have also remained calm.
(Reporting by Dhara Ranasinghe and Harry Robertson; Additional reporting by Gertrude Chavez-Dreyfuss and Alun John; Editing by Karin Strohecker and Kirsten Donovan)