Fixed Income: The AI Issuance Boom and What it Means For Portfolios

SPEAKER_1 (0:04)

Hi, and welcome back to The Allocation.

The biggest investment-grade issuance cycle in history is underway, and many fixed-income investors are still running an outdated playbook. Breaking that down in this episode are Apollo Partners Brian Weinstein and John Cortese. Earlier this year, Brian and John introduced our quarterly series of episodes on the continued convergence of credit markets across public and private. And here, they're back in the studio to cover what $3 to $5 trillion in AI-driven debt issuance means for market structure, why index-based approaches might be running out of upside, and how the lines between public and private credit continue to blur. All are critical dynamics for managing fixed-income allocations. So here are Brian and John.

Brian Weinstein (0:50)

Hello, and welcome to the third iteration of Convergence, where we cover fixed income and the changing world in which we live. We're not trying to do market recaps, but we will cover big themes in the markets. And today, we want to speak about AI. And I know everyone's tired of hearing AI.

But if you think about the first two versions of this that we did, we talked about convergence, the idea that private markets and public markets were touching in ways that they really hadn't before. And we talked a lot about dispersion, the idea that despite things looking common to the surface, that there was a lot of noise. And we did touch on the idea that the capex needs for AI hyperscalers data centers and others were significant. And I think what's happened in the last couple of months is that the issuance has hit a fever pitch. And it may be the only thing people are speaking about. That is the theme driving markets broadly, certainly fixed income markets. So today I'm joined by John Cortese, as always. And we are going to go over some of these themes, what it means for you. Because I think fixing investors have lived this charmed life of being able to own indices for the last couple of years, maybe even a decade, and it's getting more difficult. And it's growing up, and it's being forced to change by massive CapEx needs. And we're going to cover those topics today. John, how are you?

John Cortese (2:04)

Excited to be here. AI.

Brian Weinstein (2:06)

AI.

John Cortese (2:06)

AI and Brian Weinstein.

Brian Weinstein (2:08)

AI, Brian Weinstein, John Cortese. And John, listen, we started this podcast eight months ago, speaking about convergence. And I know it sounded like clever marketing, but then you look at the reality, and it's not marketing. What's happening in the markets, which we have a front row seat to every day, is that the issuance that is happening to drive the new economy is bigger than anything we've ever seen before.

John Cortese (2:31)

Yeah, it was a year ago when we started saying public and private markets are going to be indistinguishable. And it's because the biggest public companies in the world are now issuing public and private debt alternatively. And the largest private companies in the world are staying private for longer and also issuing public and private debt alternatively. And so everything is blurring. It's happening across asset classes, asset types, industries.

So it just totally changes the way that you have to view origination, how broad you have to be, I think the way that you manage risk in your portfolios. So all things excited to talk to you about today.

Brian Weinstein (3:10)

And so the first big topic on my list is the market structure, which sounds boring and who cares, it's fixed income, it just trades and it moves and it's easy. But what you just said, I think is really important. We are in the middle of the biggest IG issuance cycle ever. It was the biggest July ever for IG, it was the biggest August ever for IG. And by the way, let's stick first to names people understand, right? Oracle, Meta, Google, Amazon, these are big public names doing big public issuance.

You have an amazing seed running trading and portfolio management, and you have a history of looking at markets that goes a long way back. Have you ever seen anything like this? And how is the market structure of just IG, the simplest market, changing because of these big well-known issuance doing what they're doing?

John Cortese (3:54)

Yeah, you can go back. I started in the industry during the.com bubble as it was bursting. So I didn't quite live kind of what that felt like on the way up, but you talk to people who did or you study it, and maybe the scale of chatter and discussion was as high.

I don't think it was the same level of largest unlevered companies in the world that were established and businesses turning asset heavy. It's such a great pace. Google was a new company. Amazon was a new company. It wasn't the same 20 or 30 year stalwarts in the market that everyone knows all of a sudden coming fast and furious at you at the credit markets. So it does seem like this is a little different in that the quantum of credit risk that's entering the system and just the quantum of portfolio management change and construction that's happening does seem like this is different this time.