Episode summary
How Higher Rates and AI Issuance Are Affecting Credit Markets
The Markets
· · Guests: Alex Finston
Summary
Credit markets remain resilient despite a hotter CPI print, with Alex Finston arguing that the bigger question is not just inflation, but how rates interact with the AI growth story. He says corporate spreads are still tight, investment-grade credit remains near the 10th percentile of a 20-year look-back, and recent volatility has not broken investor demand for high-quality paper.
Finston argues that slow, steady moves higher in rates have historically been viewed as an opportunity, while disorderly spikes are what unsettle credit markets. He says the market is still absorbing heavy AI-related issuance because there is strong capital waiting to be deployed, and that dispersion across sectors is creating a more selective, credit-picker’s market rather than a broad deterioration.
He also points to a trade in higher-quality AI credit at wider yields, the usefulness of hedges while implied volatility stays low, and an unusual opportunity in municipal bonds. In his view, higher supply in munis has lifted yields enough to make tax-equivalent returns around 10% attractive, especially for high-quality long-dated paper.
Key takeaways
- Alex Finston says credit markets have stayed “incredibly resilient” in 2026, with investment-grade spreads still around the 10th percentile on a 20-year look-back.
- He says slow and steady rises in Treasury yields have often been met with buying, while violent rate moves are what cause credit market agitation.
- Finston thinks AI-related debt issuance has been well absorbed and that the market remains supported by strong, diverse demand for high-quality credit.
- He says implied volatility is still low, making portfolio hedges relatively attractive now.
- He highlights municipal bonds as an opportunity, saying high-quality 30-year GO debt can approach 10% tax-equivalent yields.
Notable quotes
“credit markets have been incredibly resilient throughout the course of 2026 by any reasonable historical narrative”
“slow and steady moves higher in rates have generally been met with buying and been viewed as an opportunity”
“We've seen an incredible amount of investment in the AI space via debt markets”
“I think it's an incredible opportunity to be able to buy high-quality AI at wider yields than we've seen”
“the ability to replicate high quality 30-year GO at tax equivalent yields of 10%, historically, pretty attractive”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Thursday, October 15th, and I'm here in the Goldman Sachs trading floor with Alex Finston, who is co-head of US and Asia credit trading within FICC and equities. Alex, thanks so much for joining us on The Markets.
Yeah, my pleasure. Okay, Alex, let's start with the data because it's been a big week of data with CPI out yesterday and an interesting reaction from the bond market. CPI came in hot, bond market first rates went up, then rates came down.
They've come back down again today. What's going on with CPI and why the bond reaction? Yeah, look, clearly a disappointing number from the perspective of the market.
Yesterday and also with the PPI data from today, I'd say there's a hyperfocus in terms of near-term inflation catalysts and the flexibility this provides the Fed. I would say elements of higher than expected, both core and energy, created some anxiety there. But I'd say the larger theme is still what is the interplay between this and the AI growth story.
So, you know, as we looked at, the reaction function in the market, I'd say the sharp decline in yields was really, the element here that the market's focused on. And really that's just telling you how much the market is looking forward towards, like will the long-term growth story be impacted at all or is this a short-term blip? That's a great point.
So, on the one hand, you have inflation pushing up rates, but on the other hand, you have people worried that it's too much, and then growth will push down rates. All right, let's talk about credit here because that's your real focus here, and credit is where rates maybe have the biggest impact in the corporate credit market.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- higher rates
- credit markets resilience
- ai issuance
- bond yield outlook
- hedging and portfolio risk
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “How Higher Rates and AI Issuance Are Affecting Credit Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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