Goldman Sachs' chief credit strategist, Amanda Lynam, has indicated that a record wave of corporate debt issuance is overwhelming investors, causing risk premiums on high-yield bonds to surge to their highest levels since April. Lynam noted that the market is experiencing "episodic indigestion," similar to what was observed in the investment-grade market earlier in the summer.
The U.S. high-yield bond market saw a significant increase in risk premiums, with spreads widening 12 basis points to 294 basis points over safer U.S. Treasuries as of Friday's close, marking the highest level since April. For the riskiest CCC-rated bonds, average spreads climbed to 968 basis points, a peak not seen since November 2023. This surge is largely driven by a heavy supply of new corporate offerings, with September's high-yield issuance reaching $38.51 billion, making it the busiest month of the year.
Notable contributors to this volume include a $10 billion offering from SoftBank Group Corp. Additionally, Paramount Skydance Corp. is reportedly planning to borrow $44.4 billion through a mix of investment-grade and high-yield bonds. Goldman Sachs also tracked nearly $600 billion in debt supply this year related to artificial intelligence initiatives, though only about 40% came from hyperscalers.
The combination of heavy supply and rising benchmark bond yields is compressing corporate bond prices. Lynam is closely monitoring the potential impact of interest rate volatility on investor sentiment, questioning at what level higher rates volatility might reduce investor confidence in corporate credit. Goldman Sachs is currently preferring BBB-rated investment-grade bonds, as much of the AI-related debt has originated from AA and BB ratings categories, and believes the market might be past the peak of AI-related supply for 2026.
