Data Center ABS: Finding Value Amidst A Credit Market Sell-off

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August 6, 2026 05:01 PM GMT

ABS Market Insights | North America

Morgan Stanley & Co. LLC

Carolyn L Campbell

Strategist

Data Center ABS: Finding Value

Amidst A Credit Market Sell-off

James Egan

Strategist

Fernanda Lima

Strategist

A huge amount of supply across fixed income markets – $360bn

YTD globally – finally pushed AI- and data center-related

corporate credit spreads wider over the last six weeks. ABS has

not followed - yet. We expect spreads across the capital stack to

soften from here, and prefer BBBs once that widening occurs.

Key Takeaways

In corporate credit, spreads finally capitulated to the exceptionally strong

issuance related to financing AI and data centers across both HY and IG markets:

IG-rated data center secured bonds are 40bps wider since mid-June, while HY

counterparts sold off 120bps over the same period. We think there is sufficient

market and balance sheet capacity to absorb this heightened pace of issuance,

but wider spreads are a necessary adjustment.

The reaction in ABS has been understated: pricings in July were largely resilient to

weakness in credit, particularly at the top of the stack, and spreads in secondary

have only drifted slightly wider.

A few key differentiating factors explain the ABS market's nonchalance:

securitized credit has already repriced elevated supply expectations, and the

illiquidity of the secondary market makes price discovery challenging. And while

supply is indeed pacing to set a new all-time record, the total issuance between

ABS & CMBS – $18bn, or 64% of FY25 supply – looks relatively tame compared

to corporate credit where issuance has already far exceeded FY25 volumes.

Moreover, assets underlying ABS & CMBS deals are fully stabilized which may

help mute volatility to headlines related to political pushback and construction

risk. We view any new policies that could limit or delay incremental new builds as

positive for existing assets (and thus securitized credit) given the reduction in

overbuild risk.

We think risks skew to the downside from here and would expect spreads to

soften in ABS should corporate spreads stay wide.…