After the price slide in software stocks, the focus is now on the credit market. Deutsche Bank warns of a historic cluster risk – and possible consequences far beyond individual stocks.
• Software and tech account for around 30 percent of the speculative credit market
• AI concerns meet high debt and rising interest rates
• Private credit is considered particularly vulnerable to increasing defaults
2026 is not the year of software stocks so far. One bad news follows the next and shakes the sector. It was only at the beginning of February that growing concerns about disruptive AI applications caused investors to panic.
Deutsche Bank is now focusing on the credit market – and suggests that the recent turbulence is not just limited to price fluctuations in individual stocks, but could take on larger proportions.
Deutsche Bank sounds the alarm: historical cluster risk
Software and technology companies represent $597 billion and $681 billion, respectively, in the speculative lending market, according to Bloomberg. That’s about 14 and 16 percent – together almost a third of the market for high-yield bonds, leveraged loans and US private credit financing.
According to Bloomberg, Deutsche Bank analysts led by Steve Caprio warn that a high level of outstanding debt could further depress market sentiment if defaults in the software sector increase.
Deutsche Bank warns the impact could “rival those of the energy sector in 2016.” Unlike ten years ago, the tensions would first appear in the private credit sector, before the classic high-yield market reacted more strongly. The magnitude alone makes it clear why the bank speaks of a historical cluster risk.
AI meets high debt – increasing pressure in the credit market
“A storm has rocked the credit market,” said Scott Macklin, head of leveraged finance at Obra Capital Inc., in another Bloomberg article. This “storm” was triggered by a mixture of high issuance volumes and increasing doubts about the future of software business models in the age of artificial intelligence. As a result, the values of individual corporate loans fell significantly as investors fear that powerful AI tools could partially displace classic software offerings.
In addition, according to Bloomberg, Deutsche Bank points to structural stress factors: Since the interest rate turnaround in 2022, many companies have been under greater cash flow pressure, while the proportion of so-called “payment-in-kind” loans (PIK) in the software sector is above the market average at 11.3 percent. “The reality has changed significantly compared to the financing phase of many of these companies,” the analysis says. The SaaS value creation model is not yet mature enough to easily withstand rapid AI introduction.
Refinancing risks and vulnerable rating structures
Other institutes also warn of risks. According to Reuters, the US investment bank Morgan Stanley particularly emphasizes the quality of open loans in the software sector. Around half of these loans have a rating of B- or worse, and 26 percent even fall into the speculative CCC range.
Most issuers are private and sponsor-backed. This reduces transparency for investors and makes it more difficult to assess possible AI-related disruptions. The market also has a steep maturity structure: around 30 percent of outstanding software loans expire by 2028 – significantly more than in the overall market.
In a pessimistic scenario, default rates in the US private credit market could climb to as high as 13 percent, according to a Bloomberg report citing UBS. In the worst case, leveraged loans and high-yield bonds would have to expect rates of 8 and 4 percent respectively. However, UBS emphasizes that it is still too early to predict the timing of a possible widespread disruption.
Overreaction or structural reassessment?
Despite sensational headlines, the situation is differentiated. According to Bloomberg, market participants emphasize that many software solutions are firmly integrated into company processes and cannot be replaced quickly. “The companies are not broken,” a restructuring expert is quoted as saying, “it is the balance sheets that are too heavily burdened.”
Morgan Stanley also does not expect a sharp increase in defaults in the short term, but does expect loan prices to continue to fluctuate. The recent sell-off could indicate both a cautious revaluation and a partial overreaction.
However, one thing is clear: If the risk of default materializes in the software sector, the effect would be noticeable due to the high concentration in the speculative credit market. Investors’ attention is likely to increasingly focus not only on price charts, but also on the stability of capital structures.
Editorial team finanzen.net
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