Goldman Sachs expects credit markets to offer fresh investment opportunities through the end of 2026, with higher yields creating opportunities in high-quality artificial intelligence (AI) debt and municipal bonds, while low market volatility makes portfolio hedging attractive, according to reports from The Hindu BusinessLine, ANI, and BigGo Finance. Alex Finston, co-head of US and Asia Credit Trading at Goldman Sachs FICC and Equities, noted that credit markets had remained resilient despite rising interest rates, increased AI-related borrowing and differences in performance across sectors. Speaking on the firm's 'The Markets' podcast, Finston identified high-quality AI credit, portfolio hedges and municipal bonds as key areas of interest for investors. He emphasized that investors continued to show strong demand for high-quality corporate debt, particularly during periods of market weakness, and expected opportunities to emerge as companies approach the end of the year with financing requirements.
Credit markets have remained healthy through 2026, with investment-grade credit spreads at around the 10th percentile of their range over the past 20 years, while leveraged finance spreads were around the 25th percentile, as reported by The Hindu BusinessLine, ANI, and BigGo Finance. However, Finston cautioned that conditions were becoming increasingly differentiated across sectors, reflecting the impact of AI-related borrowing, technological disruption and persistently higher interest rates. He described the current environment as a 'credit picker's market', in which investors would need to distinguish between stronger and weaker borrowers rather than treat the market uniformly. Finston noted that low implied volatility created a favourable environment for investors looking to hedge their portfolios.
Recent market volatility has created an opportunity to buy high-quality AI-related debt at higher yields than seen in some time, according to Finston's comments reported by The Hindu BusinessLine, ANI, and BigGo Finance. He also highlighted municipal bonds, noting that increased supply over the past two months had created opportunities to purchase highly rated securities at higher absolute yields. Tax-equivalent yields on high-quality municipal bonds were approaching 10 per cent, he said. Finston added that investors would monitor the US Federal Reserve's flexibility, the possibility of large AI-related debt deals before year-end and the structure, duration and geographical sources of financing for those transactions. The municipal bond opportunity is particularly notable, with Finston flagging it as the most specific and unusual trade idea he's presented in recent conversations.
Finston warned that gradual increases in interest rates had historically attracted buyers to fixed-income assets, while sharp and disorderly movements could create greater market stress, as reported by The Hindu BusinessLine, ANI, and BigGo Finance. Credit markets could also face pressure if borrowing costs rose to levels that made refinancing economically unviable. He emphasized that the sustainability of the broader economic growth story would remain central to market performance, while the availability of capital and liquidity continued to support the outlook for credit markets. The firm expects opportunities to emerge as companies approach the end of the year with financing requirements, with Finston noting that the investment grade index sits roughly in the 10th percentile on a 20-year lookback, and loan markets around the 25th percentile — both still very healthy at a macro level.
