Welcome back. Big tech companies unveiling plans in recent days to fund the AI buildout. Alphabet's launching tech's first 100year bond since 1997.While Oracle says it's planning to raise up to $50 billion in debt and equity this year. Joining us now to discuss all this is Goldman Sachs head of investment grade credit Johnny Fine. Welcome.Perfect time to have you here. So, h how's the market absorbing all of these financing needs. >> Well, the short answer is incredibly well.uh the Oracle financing priced l ...

Thank you both for being with us this uh this afternoon here. I'm going to start a little bit with you Joanna just about what the state of the market is like in your mind given the fact that we have a new Fed chair nominee. We have interest rates behaving somewhat well over the course of the last few weeks and even months at this point and a market that seems to be trying to figure out where the next step is going to be.What exactly do you make of all of this in confluence with each other, Joanna. Well, I t ...

Fed Policy and Labor Market - The Fed is focusing on the labor market and is expected to cut rates, potentially by 25 basis points in October, to achieve full employment [2][5] - Market participants anticipate the Fed will cut rates, with the two-year yield serving as an indicator of future Fed policy [3] - The market is pricing in a terminal funds rate of around 3%, aligning with estimates of a neutral rate, but there's downside risk if the economy softens [11][12] - The Fed's focus on the labor market weakness suggests a path towards lowering the federal funds rate, but cautiously, in increments of 25 basis points [6] - Tariffs are estimated to contribute about 10% to the current inflation rate, with the remaining impact expected over the next two to three quarters [50] Credit Market and Risk Assessment - Concerns about credit quality are emerging, with J P Morgan CEO Jamie Dimon warning of potential future credit problems, likening them to "cockroaches" [28][31] - Despite concerns, the investment-grade credit market shows resilience, supported by strong technicals and consistent inflows [33][34] - Investment-grade credit markets are experiencing 24 straight weeks of inflows, driven by attractive yields, while high-yield markets saw outflows [34][35] - Spreads between investment-grade banks and the rest of investment grade are relatively flat, indicating strong performance by big banks, but investors are advised to be cautious [38][39] Economic Outlook and Market Dynamics - The U S remains the best-performing country in terms of growth globally, despite trade war concerns with China [16][17] - The dollar's exposure has been somewhat hedged away, and foreign demand for U S assets, including corporate mortgage bonds, remains strong [16]

Summary of Corporate Credit Strategy and Market Overview Industry Overview - The document focuses on the **Corporate Credit** market, specifically **Investment Grade (IG)** and **High Yield (HY)** credit sectors in the US and Europe, as well as their performance metrics and trends as of July 31, 2025 [2][4][24]. Key Points and Arguments Performance Recap Across Asset Classes - The **S&P 500** index is at **6,339**, showing a **1Y return of 14.2%** and a **1M change of 8.6%** [8]. - **US IG Corporates** have a current spread of **76 basis points (bp)**, down from **119 bp** a year ago, indicating tightening conditions [9]. - **US HY Corporates** have a current spread of **278 bp**, down from **453 bp** a year ago, reflecting improved credit conditions [10]. Valuation Comparison - The **Investment Grade Index** has seen a decrease in spreads from **130 bp** in 2022 to **76 bp** currently, indicating a favorable environment for IG credit [56]. - **High Yield spreads** have also tightened, with current spreads at **278 bp**, down from **647 bp** a year ago, suggesting a recovery in the high yield market [10]. Corporate Credit Spreads - The **US IG Credit** market shows a current spread of **74 bp**, while the **CDX IG** index is at **47 bp**, both indicating a tightening trend [9]. - In Europe, the **iTraxx Main** index is at **51 bp**, reflecting a stable credit environment [9]. New Issuance Trends - In 2025 YTD, **Investment Grade issuance** totaled **$1,096.8 billion**, with **Financials** leading at **45%** of total issuance [66]. - **Consumer Staples** saw a significant increase in issuance by **110%** year-over-year, while **Healthcare** issuance decreased by **58%** [66]. Sector Performance - The **Financials** sector remains dominant in IG issuance, while **Information Technology** has seen a notable increase in issuance by **85%** year-over-year [66]. - **Utilities** and **Healthcare** sectors have shown declines in issuance, indicating sector-specific challenges [66]. Yield and Spread Analysis - Current yields for **US IG** are around **3.53%**, while **US HY** yields are at **5.91%**, reflecting the risk-return profile of these segments [13]. - The **spread differential** between **AAA** and **BBB** rated bonds is currently at **93 bp**, indicating a risk premium for lower-rated credits [30]. Important but Overlooked Content - The document highlights the **liquidity metrics** and **fund flows** into the corporate credit market, which are crucial for understanding market dynamics but may not be the primary focus of investors [7]. - The **fundamentals** section discusses the underlying economic conditions affecting credit quality, which is essential for assessing long-term investment risks [18]. Conclusion - The Corporate Credit market is experiencing tightening spreads and improved performance metrics, particularly in the IG sector. The trends in new issuance and sector performance indicate a recovery phase, although certain sectors like Healthcare face challenges. Investors should consider liquidity and fundamental factors when making investment decisions in this space.

Capital Markets Activity & Outlook - Capital markets franchises are experiencing bursts of activity, with investment grade markets running at or near record highs in both the US and Euro markets [2] - The Euro market has an increased share of global financing, attracting US corporates seeking lower yielding markets [3] - The outlook for capital markets remains robust, with leverage finance and US IPOs showing significant activity [3] - The path of least resistance points towards continued robust activity overall, despite some policy uncertainties [4] Interest Rates & Fed Policy - Issuers are not necessarily counting on Fed cuts this year, aligning with market pricing expectations of a couple of cuts through the end of the year and more into 2026 [5] - Elevated term yields in the US Treasury market, with a term premium of around 80 to 85 basis points, act as a tax on mortgage rates and corporate borrowing rates [5][6] - Noise around the potential change in Fed chair contributes to a term premium of approximately 20 to 25 basis points [9] - Markets are pricing in a higher probability of less consensus among FOMC voting members, potentially leading to increased uncertainty and volatility [11][13] Treasury Market - The path of least resistance in treasuries is towards a steeper curve [10] - Treasury financing is expected to remain concentrated in short duration markets [11] Market Sentiment & Risk - The market reacted strongly to news regarding the Fed chair, indicating sensitivity to changes in leadership [8] - Volatility and risk premium may rise as a new Fed era approaches, suggesting a potentially attractive environment for continued financing [18] - Credit spreads are in the bottom 1% over the last two decades, indicating a favorable financing environment [18]