How Higher Rates and AI Issuance Are Affecting Credit Markets

Recent CPI and PPI data have triggered market volatility, yet the broader economic narrative remains anchored by the AI growth story. Despite concerns over inflation and rising interest rates, corporate credit markets show remarkable resilience, with spreads remaining tight by historical standards. Investors continue to absorb new debt supply, particularly within the AI sector, as capital deployment remains robust. While higher interest rates create sector-specific dispersion, they also present unique opportunities for credit selection. High-quality municipal bonds, currently offering tax-equivalent yields approaching 10%, emerge as a compelling investment option amid heightened supply. The market remains focused on long-term growth prospects, treating short-term rate fluctuations as manageable blips rather than systemic threats to the credit cycle. Navigating these macroeconomic shifts requires disciplined credit picking, as the current environment continues to offer attractive entry points for high-quality assets.