How Rising Rates and AI Issuance Are Affecting Credit…

PodcastGoldman Sachs The MarketsAlex FinstonOct 16

The guest describes credit markets as resilient in 2026, with tight spreads, continued buying of high-quality credit on weaker days, and substantial AI-related debt issuance absorbed by a diverse investor base. He points to a credit-pickers market, historically attractive tax-equivalent yields on certain municipal bonds, and available market liquidity, while noting that volatility remains low.

Fixed Income Market Liquidity Artificial Intelligence Interest Rates Market Volatility Investment Strategy

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Key Takeaways

The guest describes credit as healthy at a macro level, citing investment-grade spreads around the 10th percentile and the Leadfin index at the 25th percentile on a 20-year lookback, alongside low implied volatility across most macro asset classes. At the same time, he calls credit a pickers market, with some borrowers paying wider spreads while others finance at tight spreads.

The guest says gradual rate increases have generally attracted fixed-income buyers, while rapid, disorderly increases tend to cause more agitation; buyers of high-quality credit have also continued to emerge on weaker days. He says liquidity and capital remain available in markets and that the backdrop could provide opportunities through year-end.

The guest says substantial AI investment financed through debt markets has been absorbed by a diverse range of investors, with considerable capital still available to invest in the space.

MARKETS

Tight Credit Spreads — The guest says credit markets have remained resilient in 2026: investment-grade spreads are roughly in the 10th percentile, and the Leadfin index is in the 25th percentile on a 20-year lookback. He describes credit as healthy at a macro level.

“I would say at a high level, credit markets have been incredibly resilient throughout the course of 2026. By any reasonable historical narrative, spreads are still tight…”—

Fixed-Income Demand — The guest says gradual rate increases have generally drawn buyers to fixed income, while rapid, disorderly increases tend to cause more agitation. Buyers of high-quality credit have continued to emerge on weaker days.

“When we look at some of the historical narratives or periods of volatility that we've seen since the great financial crisis, slow and steady moves moves higher in rates have…”—

AI Debt Demand — The guest says a diverse range of investors has absorbed substantial AI investment through debt markets. He adds that considerable capital remains available to invest in the space.

“We've seen an incredible amount of, you know, investment in the AI space via, you know, debt markets…”—

CPI, Rates, and Credit

The guest says hot inflation data created some anxiety, but markets remain focused on how rates interact with the AI growth outlook and credit remains resilient.

Higher Rates and Credit Demand

The guest describes historically tight spreads and strong demand for high-quality credit, while noting that disorderly rate increases or uneconomic borrowing costs could unsettle markets.

AI Issuance and Market Resilience

The guest says AI-related debt has been absorbed by diverse investors, liquidity remains strong, and credit selection matters as market dispersion creates winners and losers.

AI Credit and Muni Yields

The guest highlights opportunities in higher-yielding AI credit, low-cost portfolio hedges, and high-quality municipal bonds with historically attractive tax-equivalent yields.