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How Rising Rates and AI Issuance Are Affecting Credit Markets
- Credit markets are forecasted to remain resilient through 2026 with tight spreads, provided absolute interest rates do not rise to levels where borrower funding becomes uneconomic, though disorderly, rapid rate increases could trigger agitation.
- High-quality credits are expected to attract consistent buying activity during market weakness, creating a "credit picker's market" where dispersion between winners and losers emerges, while large AI deals are anticipated to materialize before year-end with specific deal structures serving as a key observation point.
- Implied volatility across macro asset classes is projected to stay low, presenting opportunities to purchase hedges and buy high-quality AI assets at wider yields, while tax-equivalent yields on high-quality municipal bonds are expected to approach 10% driven by recent heightened supply and a replication of 30-year government obligations.
- Growth and the AI narrative are designated as the primary market drivers, with global financing sources monitored to sustain this trajectory and flexibility from the Fed expected in the coming weeks.
- The New York Jets are projected to finish the current season with a record below .500 before returning to a strong performance in the 2027 season.
- The market anticipates continued appreciation for available liquidity and capital, with significant investment opportunities expected to emerge between the current date and the end of the year.