The AI sector’s substantial demand for funding has driven a record year for U.S. dollar investment-grade debt issuance, leading Goldman Sachs to significantly increase its credit market forecasts. The bank has raised its 2026 USD IG gross supply forecast to $2.3 trillion and anticipates continued strong activity into 2027.
This surge, fueled by AI-related issuers making up 24% of current USD IG gross supply, contrasts with a more modest contribution from the euro IG market. Despite weak year-to-date returns attributed to rising yields, Goldman Sachs expects interest rates to continue shaping market performance.
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The burgeoning Artificial Intelligence sector has become a significant catalyst for U.S. dollar investment-grade (IG) gross debt issuance, prompting Goldman Sachs to revise its credit market forecasts upwards. The AI sector's demand for funding has sustained robust activity through the summer months, surpassing typical seasonal slowdowns.
Goldman Sachs has increased its 2026 USD IG gross credit supply forecast to $2.3 trillion, up from a previous estimate of $2.1 trillion. Furthermore, the net supply forecast has been raised to $1.0 trillion from $850 billion. Looking ahead to 2027, the investment bank anticipates a continued high pace of activity, projecting USD IG gross supply at $2.4 trillion.
AI-related issuers currently account for approximately 24% of the total USD IG gross supply this year, a substantial figure that has propelled overall USD IG credit supply to a year-to-date record. This contrasts sharply with the euro IG market, where AI-related issuers represent only about 6% of the supply, with a mere 2% increase in overall EUR IG issuance.
The firm highlighted that the anticipated "summer slowdown" has proven elusive, largely due to this AI-driven supply. Market participants are now bracing for a very busy September.
Goldman Sachs also noted a potential narrowing of the euro's technical advantage over the dollar, as hyperscalers increasingly explore funding beyond the dollar market. The EUR IG credit market is identified as the largest alternative public debt market.
Despite negative year-to-date returns for both USD IG and EUR IG, Goldman Sachs expects interest rates to remain the primary driver of total returns. Spreads have widened only modestly compared to the beginning of the year, with higher U.S. Treasury and Bund yields being the main culprits for the weak return performance. The bank suggests that returns would be materially lower if rates stay at current levels, though they anticipate yields to decline, which would improve returns, albeit still leaving them below historical averages.
Global bond yields have been climbing to multi-year highs, influenced by concerns over elevated energy costs, significant government borrowing, and inflation worries. Germany's 10-year yield has reached its highest point since 2011, while U.S. 10-year Treasury yields hit their highest since November 2023 recently. The 61 basis point rise in 10-year U.S. Treasury yields this year has offset a substantial portion of USD IG payouts, and the 52 basis point increase in 10-year Bund yields has eroded much of the "carry cushion in EUR IG," according to Goldman Sachs.
