AI-Driven Debt Binge Threatens to Disrupt Passive Credit Funds

The largest wave of corporate bond supply in history is set to be met by a rapidly-growing pool of passive buyers. Some investors are warning that disruption will follow.

As Big Tech firms rush to raise unprecedented amounts of money to build out artificial intelligence, a growing share of those deals will be bought by passive funds. These strategies — which follow an index or buy a basket of bonds and wait until maturity — have ballooned in recent years, raising concerns that their indiscriminate style of bond buying has distorted metrics of risk and left investors vulnerable.

Now, record ...