Fixed Income: The AI Issuance Boom and What it Means For Portfolios

(upbeat music) Hi, and welcome back to the allocation. The biggest investment grade issue in cycle and history is underway, and many fixed income investors are still running an outdated playbook. Breaking that down in this episode are Apollo partners Brian Weinstein and John Cortese. Earlier this year, Brian and John introduced our quarterly series of episodes on the continued convergence of credit markets across public and private. And here they're back in the studio to cover what three to five trillion dollars in AI-driven debt issuance means for market structure, why index-based approaches might be running out of upside, and how the lines between public and private credit continue to blur. All are critical dynamics for managing fixed income allocations. So here are Brian and John. Hello, and welcome to the third iteration of convergence where we cover fixed income and the changing world in which we live. We're not trying to do market recaps, but we will cover big themes in the markets. And today, we want to speak about AI. And I know everyone's tired paying AI, but if you think about the first two versions of this that we did, when we talked about convergence, the idea that private markets and public markets were touching in ways that they really hadn't before. And we talked a lot about dispersion, the idea that despite things like in common to the surface, that there was a lot of noise. And we did touch on the idea that the CAPEX needs for AI, hyper-scalers and data centers and others were significant. And I think what happened in the last couple of months is that the issuance has hit fever pitch. And it may be the only thing people are speaking about. That is the theme driving markets broadly, certainly fixed income markets. So today I'm joined by John Cortese, as always. And we are gonna go over some of these themes, what it means for you, because I think fixed income investors have lived this charmed life with being able to own indices for the last couple of years, maybe even in a decade. And it's getting more difficult and it's growing up and it's being forced to change by massive CAPEX needs. And we're gonna cover those topics today. John, how are you? - I'm excited to be here. AI. - AI. - AI and Brian Weinstein. (laughing) - AI, Brian Weinstein. John Cortese, and John Listen, we started this podcast eight months ago, speaking about convergence. And I know it sounded like clever marketing, but then you look at the reality and it's not marketing. Right, what's happening in the markets, which we have a front row seat to every day, is that the issuance that is happening to drive the new economy is bigger than anything we've ever seen before. - Yeah, it was a year ago when we started saying public and private markets are gonna be indistinguishable. And it's because the biggest public companies in the world are now issuing public and private debt alternatively. And the largest private companies in the world are staying private for longer. And also issuing public and private debt alternatively. And so everything's blurring. It's happening across asset classes, asset types, industries. So it just totally changes the way that you have to view origination, how broad you have to be. I think the way that you manage rescuing portfolios, so all things excited to talk to you about today. - And so the first big topic on my list is the market structure, which sounds boring and who cares, it's fixed income, it just trades and it moves and it's easy. But what you just said, I think is really important. We are in the middle of the biggest IG issuance cycle ever. It was the biggest July ever for IG. It was the biggest August ever for IG. And by the way, let's stick first to names people understand, right? Oracle, meta, Google, Amazon. These are big public names, doing big public issuance. You have an amazing seed running, trading and portfolio management. And you have a history of looking at markets that goes a long way back. Have you ever seen anything like this? And how is the market structure of just IG, the simplest market, changing because of these big well-known issuers doing, what they're doing? - Yeah, you can go back, I started in the industry during the dot com bubble. Right, as it was bursting. So I didn't quite live kind of what that felt like on the way up, but you talked to people who did or you studied and maybe the scale of chatter and discussion was as high. But I don't think it was the same level of largest unlevered companies in the world that were established businesses turning asset heavy. It's such a great pace. Google was a new company, Amazon was a new company. It wasn't those same 20 or 30 year stalwarts in the market that everyone knows all of a sudden coming fast and furious at you at the credit markets. So it does seem like this is a little different in that the quantum of credit risk that's entering the system as the quantum of portfolio management, change and construction that's happening does seem like this is different this time. - So in the last year, there's four companies, I mentioned $187 billion of issuance. And by the way, they're not issuing two years, right? They're issuing any maturity in any market. So Australia, Switzerland, UK, Australia. - Google Australia today, right? - So what's interesting to me is that we've lived in this really boring market. And if you're a long and duration buyer, which if you have long liabilities, a pension fund, it's been a famine, right? There's been the same 20 names to buy forever. And now, as you said, you have some of the best rated names, companies that were cash heavy, they're becoming less, but these are not companies that broadly speaking were worried about defaults or there will be downgrades, but you're seeing spreads wide, right? You're actually seeing investors say, wait a second, I know Google's a great company just to choose one, but if you're going to issue 30 year paper every quarter and you're doing $187 billion a year, and I think it's increasing that decreasing, I'm going to charge you for it, right? There's more risk to that paper just because I have to take it down. And so I think we'll come back to that because I do think, as you and I both know, there are mathematical limits to how much of this stuff can be in an index, right? We live through it in high yield. I don't think it matters as much anymore, but during the auto downgrades, we had to cap the high yield index because people said I don't want to be 4% or 5% of a name. So we're going to come back to that. Talk, let's talk a little bit about what's happening off balance sheet, right? Now this is the convergence part, it seemed like it was the complicated part, but now I think it's the part you must understand, right? Everyone sees the 30-year issuance that's happening publicly. But the same companies, and a few others that haven't tapped the public market yet, are issuing off balance sheet privately. Why does that matter? - I think twofold, one is, we talk about the corporate net issuance being higher than treasury net issuance this year. I think we've said that. We were saying that at the end of last year. It seemed like that's going to be the case. So the corporate market is driving the treasury market in many ways. But that same issuance is also happening in commercial mortgage land. It's happening in asset back. It's happening in private and public. And so you're just seeing the bit that's public driving the over market. So I think there's this kind of maybe crowding out effect that's happening where the more this happens off and on balance sheet, the more you have to make way for your portfolios. And I also think that these companies are being advised, well, and they're not dumb. They're going to issue if there's a market that seems really tight versus another one or really off sides versus another one or really loose in terms of covenants versus another one. They're going to tap that market first. That's why they're going in every single currency they're going in every single region. They're trying to find portfolios that haven't bought it yet. And it makes all the sense in the world when you have to issue that quantum $5 trillion as a spend, right, 2030. You have to have an understanding of where all these risks are clearing. It's really hard to do. We do a lot of things internally to help us do that. But it just, it's basic information sharing. It's basic pipeline viewing across all the PMs. It's making sure that everyone's aware and even able to understand these different products to compare them. It's not always easy. But those are the things that I think are really needed in this, in that kind of environment. - So if you think about what we did with Valor, XAI, which is basically GPU financing, right? It was before the most recent mass issuance of that paper. When we looked at that deal and we saw what had to come down the public and private pipeline and the spreads at which those deals were coming, by the way, those were conservatively structured deals in our opinion that had no assumption of residual values, but they still came at pretty wide spreads. And so when we saw the SpaceX was going to come and we saw the quantum of a Google, I was going to issue, even if you're not buying the private debt, you have to be aware of the trends. Because if you can buy the equivalent debt in the private market to 100 wider, it's going to put pressure on those public market spreads. The first version of SpaceX, the trade was private. Effectively, that was those chip financing deals that they were guaranteeing. That traded before they even brought a broadly syndicated deal. And it was tradable. So you're having this case where some of these private companies are actually issuing debt in the market that is tradable, but it's also private. And the market's going to, that's its first taste of something liquid, which is interesting as opposed to having the big benchmark deal first and then pricing the off-balance sheet or private deal after. That's right. And so I think again, on the market structure side, I think we're at an inflection point where investors are being forced to admit that whether or not you want to buy it, whether or not you believe in the liquidity, you have to understand. And that is not going to change. Because by our estimates, and I think there are others with similar, in the next, do we say, 20 by 2030? Is it three trillion, five trillion dollars of issuance? And it can't all be public, right? Let's look at the math. If I think about the benchmarks that fix income investors use, it probably hasn't changed in our lifetime, right? It was the Lehman Ag, and the Barclays Ag, and now it's the Bloomberg Ag, and that's just the granddaddy, all the fixed income, investment-grade stuff. And if I look at that number of a couple trillion dollars of issuance that has to come, we said, okay, let's look at the high-old examples of the past. We are not going to have more than two or three percent of every issuer. Investors will cap the index or move on to something else. And so if we do that, that leaves about $800 billion of room for those large names that I mentioned, which means a couple. trillion dollars of stuff that's not going to be in the index, and that is really important. And by the way, high yield, we've gone from zero percent of AI-related stuff to four and a half percent in the last year, and that's going to change. To be clear, I think what you're saying is that you're going to fill that by 2030. Yeah, it's good. You're in my phone by 2028. For sure, 2030 is just how much sooner than that. Do investors feel like, okay, I'm full on public IG. Yep. Corporate issuance from these companies. In an IG, Ben Schmark, where portfolio construction. I think leads to who else is going to buy it then. It doesn't always have to be those same portfolio managers, same pockets or capital. But if you're just running today's playbook and just say, let's just fill the coffers of IG money, you're getting there before 2030, you're probably getting there before 2029 on public IG corporate issuance. Just on that 800 billion or trillion dollars, which is what work modeling is, how much we'll have to come in that format. Do you think the market gets it yet? So we've said this in the beginning of the year, and spreads were really tight. And by the way, if you look at the index level, they're at the all-time tights. But inside, there's some dispersion, right? There are some of the names are a little wider, middle of June, early July. It felt like we had, I thought maybe peak fear. People like, this is real. Like it's happening. They don't care about the spreads being wider yields being higher. Are we at peak fear? Do you think or do you think there's more pressure on the IG public side to come just because of the size of this market or just as the market understand it or we efficiently price yet? Yeah. I think the fear relative to the rest of the market is high. I'm not sure if it's peak, but it's pretty high. Meaning the ability to treat this risk as its own island and say there's a lot of it coming and I don't know when it's in the stop and I'm a little bit scared of how much of they're going to have to bring. Reason why it might not get much higher than this is because I think one of a couple things has to happen. Spreads that they continue to widen where money comes back in is a very excited to come back in. The companies actually have to start to show revenue and earnings that keeps everyone continue to buy at leverage levels that are declining over time, increasing over time because the earnings are going to. All this money is to go that's the question they're going to make money on this span. Yeah. There's some pretty big stats that we put up. The arithmetic teams put out on that. And I think the third thing is that you can't really continue issue at this pace without the broader market starting to move a little bit. The initial move has just been for every time I buy a hyperscaler dead issuance wider, I need to buy something that's not hyperscaler dead issuance tighter. And so the rest of the market has stayed benign. And I just think that there's a limit to how far that can go. At some point, spreads go out to 150 to 200 basis points and the best companies in the world that's going to that's going to impact the rest of defenancing for very large scale frequent users of the debt markets. The financials, right? The cable companies, like very CapEx, heavy or sensitive, debt-financed businesses. I think those are going to be the impacted. And so relative to the rest of the market, this is probably as high the fear it will be because the kind of everything else is going to have to, I think, converge a little bit. Yeah. Yeah. I tend to agree. Again, I was wondering either beginning of the year why the market was so sanguine about it. And by the way, maybe this market just doesn't think the moves are that big or important. But I don't know, 10, 20, 30, 40 basis points on a long and bond. Actually, there's a lot of dollar price you have these things moving down multiple points. And so I agree. It is amazing that it's treated like the island. So if you look at the world, if you literally cut out the big A I related issuers, everything else is at the tights, eventually that capital has to move. Yeah. The same thing is happening in leverage lending, by the way, in the software market. Let's talk about high yield because I think that's so interesting and low. Let's talk about that. Similar, maybe price action and portfolio construction action. I think different endgame. So we'll take a high-level market, leverage loan market, and look at the spreads. Software is at the widest tick of the last five years. Non-software is at the tight tick. And it's because when you're a CEO manager, there's a limp to how much software you're going to buy. You're keeping it in the cap. You're actually reducing that amount. Everything that's brought that's not a software loan, you're buying that tighter. Our view is it's not all that, right? We've made that case before. Can the same thing happen on IG where you just have to continue to buy the rest of the market tighter while this goes wider and ignore the fact that this is trading wide and compartmentalize that. Probably not at its extreme because at the end of the day, in levered land, you're worried about losing all your money when you're lending companies that go wrong. It can happen. And I just don't think that's going to be the case when you're lending to Amazon or Google or Microsoft. So here, I do think it'll change over time where you will have to bring it back into context of where the rest of the market is pricing risk, which means that can be a much larger percentage of your portfolio than the kind of levered software or asset light services businesses. No, that's right. And to the point about is this peak fear, just takes time. People are going to be slow because they figure correctly. If you don't buy this 30-year deal, you can buy the next 30-year deal so that island gets bigger until it gets to a spread level or a yield level where people say, "You know what? I'm going to take some money off the safe piece." And then the flood recedes and it becomes one market again. It's also been different in the higher market, but when we see these data center deals with different issuers and by the way, wildly different structures, different residual values, different documentation, we could have a deal come today that looks great and then tomorrow a deal with a better structure comes and the good deal today could be 100 basis points wider. So as you said, the high yield market where you can lose principle or more have a much higher probability, we're seeing the dispersion there continue to be very wide even inside of that AI sector. But I think there'll be excitement to buy those same five to 10 names that are huge companies that you know what they're going to have to raise. And so it's just a matter of how you make the pipes of finance work and over what time frame. That's right. And what we're seeing is this trip method is torture, right? It makes people do things. So just a stat we had here, well, tech single name CDS activity, 210% higher than its four-year average. Of course it is. Some of these banks, I'm sure, have an idea of who's coming. Do you have to worry about not having access to risk of these names? No, you know they're coming. And so how do you hedge it? You can't use the broad index because there's literally go in the other direction. But some of these names of the higher rated ones were trading at 30, 40 basis points over and now they're trading at 70 to 90. Not because they're going to default, but because how else are you going to? It's like you're watching a movie in slow motion and you just want to get to the end and say you have to hedge it somehow. That's one of the most important things we do is pipeline management and just understanding the pipeline where it's coming. But I guess if you go to the numbers, data center financing and how you'll market of Bitcoin mining and neo-cold financing of 500 million to 500 billion dollars, that also is a big number for that market. You already have that sector being combined as big as healthcare for the higher numbers loan markets. That one's a neat and interesting one. I think that's an amazing relationship to watch it. I actually think that's harder to see how that all gets digested. Actually, for me, relative to the RG deals. I agree. The projections are it can be 10% of the index or software topped out in loans. As you suggest, there will be some hiccups along the way. But that's the other piece to all this. We can say it's going to be 3 to 5 trillion by 2030 and you made this excellent point. There better be some profitability before then. Some of this money better cycle through the system. This could stop other ways. There could be an equity market meltdown. There could be, someone is not profitable or likewise or on the other hand is more profitable. It doesn't need as much money. But inside of that space and high yield, you can see the market skitishness, right? Bond's moving around two, three points every week just because a new deal is coming and people are comparing each one trying to figure out where the best one is. But that to me is the toughest space to ascertain. And we have a front row seed to it. So if you just summarize the market structure today, can it handle all of this? Yes, no. I think IG, yes, in the way that we're seeing for a bit longer, which drives me crazy about the idea that the tight-get tighter and the stuff slowly widens. I think in high yield you're going to see fits and starts. I think people will push it inevitably too far. I think we saw it a bit a couple weeks ago with one of the deals that had a price talk between 98 and then as low as 92 and then back to 98. I think you can see deals in high yield where it'll be, I don't know, two or three month of windows where nothing happens, because the market just stops. Yeah, supply demand. The market is a funny thing. When it gets over supplied, usually the band will have to find a new spread level to clear and vice versa. So it'll be a wild ride. We're going to be talking about this for a while. How do you change the way that you're managing portfolios and risk and curious your thoughts? And if you had to wear your hat from prior lives of speaking for broader fixed income, do you think that people are doing that yet today? What's going to be the difference in how you have to manage risk now? You're speaking about the.com bubble and all things are happening. That's about the same time that I started. And what's amazing is people are using the Lehman Ag. And the Lehman Ag was a mix, a good mix of credit and some treasuries and mortgages. This was before the Fannie and Freddie were nationalized. So they were still government guaranteed effectively, but they were viewed as risky, riskier. And what's happened since then is the government has gone to this massive issue in spree and they've nationalized the GSEs. So the indexes are 70% government risk and then 30% IG. And the IG is at all time tight. So you're basically getting no spread for buying the act. And I would say over that period of time, there's been no market movement away from using the act. People buy high yield and next they'll buy loans and by saying investors haven't gotten smarter or changed. But if you look at big public pension funds and data, they all effectively use some version of the act. And it's been broadly, okay, right? You can buy extra credit in places. People just don't know the treasuries and spreads have come in. And so I think this will force slowly. People don't like to change. But this is going to force people to think about the markets differently. Because again, even if you don't believe that you want to buy replacing replacement, you want to buy something to replace your public fixed income, you're going to get a chance to by a different risk at unique spreads. And also, if you're one of these pension funds that has bought a lot of long duration bonds, for once you're gonna have, I think, a very wide variety of things to choose from, whereas in the past, you really haven't. And I do think without making a prediction of the index being materially wider, I do think the ability to replace parts of your fixed income with things that have more yield is going to, maybe not force investors to change their benchmark, but to force them to think about the allocations internally. 'Cause it's really hard to pass up an extra 1% of investor credit sugar for 30 years. It's a lot of income, especially if you're underfunded pension fund. So again, I think the themes will be, my index is no diversification in the act, right? I basically own the US government and I own financials, and now I'm gonna own some hyperscalers. So let me go out there and be specific about what I own. And I do think, and we saw this in the equity market, and we've really not seen it in fixed income, what blew up the active equity managers was factor-based investing, right? It was, I could go and replicate different risks with different baskets of bonds, and the truth is, individual portfolio managers were unable to keep up. I think in fixed income, this AI factor is going to be drive more than just the hyperscalers, and you will see more dispersion. And so I think you're gonna see active management grow up and actually be forced to take different sets of risks and diversify themselves. And again, my personal opinion, having sat in the sea for a bit now, using both public and private securities, you have to take alpha by any means necessary in a market that has a lot of dispersion and super efficient i.e., the equity market. So I think we're gonna see the equification of the fixed income markets, getting smarter, more data we've already seen that change the way it trades. But this AI factor and issuance is going to force people, or by the way, I don't mean to allow people to have some flexibility to change what they own in fixed income for the first time, I think in 30 years. - I think there's a couple things that are top of mind now when you're managing a portfolio that's public and private across different asset classes and credit. And one is duration. Where are you taking duration? And I think we've generally like the chip financing deals because we're making a two to three year bet. I'm heavily amortizing. You know, I'm making a bet on residuals. It's a short lifespan. We could talk about that by the way. And the lifespan is moving around a lot. It seemed pretty short a year ago. And now we're seeing cases of five to six year old chips being leased out there. There's a whole compute market that's starting. And I love that stuff. It's really exciting. And if you watch it, it's not clear that it's a two or three year asset. But you don't have to make that bet and credit. You can say, okay, pay me back fully. Amortizing over the course of a five year loan. There's a really good because we like those because you're getting excess spread and you can redeploy that spread over time. The convexity of the instrument is really important. And many of these deals are structured where they can call you at a par over a couple of years or extend you 20 years that the financing market's not there. So you're taking negative convexity in the IG market that the IG market's not typically used to. Unless you're getting into a AT1 Junior preferred instruments where typically there's a pretty punitive increase of cost of capital for the bar to extend, not always the case in the kind of data centerland. So I think that one is understanding your duration and convexity is a new thing for investors, something you have to pay attention to. The third thing, like you said, is the factor risk, right? And so you have just like in high yield software lending, AI is a cross asset class disruptor. It's also being financed across asset classes. And so you have to think about how am I stressing my portfolio if I have an AI? If July, 2026 lasted three months, sure, at the end of the day, I think I'm fine and my credit risk I've taken, but what does that portfolio behave like for a couple of months? That stress testing that you have to do that's different. I think everyone got a lesson in the equity markets and how correlated their portfolios were. We've been saying this for a long time. Correlation is a really important part of credit management now too. And so that's the other big factor. I agree, it's been a perfect world. I don't think all investors are able to look at their portfolio this way. So I'm not saying it's right for everybody, but if you took a total portfolio approach, if you just said it's just who's fixing, come on, I want some stuff and fixing, come what do I do? Listen, very short duration, treasuries are great for liquidity. There's really no argument here, right? You can do other things, but there's only one thing that's super liquid every minute. It's a treasury bill, right? Even that has its moments, but it's liquid. Okay, let's go past cash. What do I want to own in the three-year sector? The trade for the last decade has been on short corporates. All the juice is gone. Short corporates, 30, 20, 30. 30 bets. Okay, so we've done that trade. Give me something in that market that is yield and carry. And a fine, it's AI factor or whatever you think it is, but so market is such. It's not riskless, but gosh, you're going to get a couple hundred basis points for that three-year bond. That's great. In the 10-year sector, again, I think you own a combination of things. You could own some treasuries if you're a pension fund. If you're a regular way investor, again, I'm not going to name the individual names with that basket of high quality issuers that are widening. Like, I want to own some of that stuff. And then if you do have 30-year liabilities, and let's put munis aside and all these other things, yeah, I've been in the same basket. Like, I don't know that I need to own the biggest risky AI factor for the next 30 years, but I can now build you a basket of great companies in 10 and 30-year that have duration of whatever I want, that I know our money go to the end of the day. And so I agree, you get this barbell structure where the high-yield part and the loan part, the left-fin part is really interesting in that sector, but man, you better understand. Don't do that passively. You don't want to buy the index there, right? And then in the IG space, I think you can actually build selective baskets and listen, it should be good, I think, for active management. And in that long-time basket, I would have put plenty of private bonds because if you're choosing a seven or 10 or 30-year duration, what you're basically saying is, I don't need that money for a lot, right? - Yeah, I think you just have to be careful of that native complexity. Just make sure you understand, can I get a call out of that risk of the runtime or my extent of the runtime, but otherwise, I agree. - The public corporate market is starting to get interested in me. Like these hyper-scalers issuing at, I don't know, Broadcom Fibre CES is trading above 100 basis points that are close to 200. That's the min-max range of where high quality high yield is clearing today. And so you now have to be thinking about, do I want to buy the next high yield bond? Do you want to actually put somewhat of work in these companies that it's existential for them to stay IG? They have to stay IG. They're going to do whatever they can to do that. They have pretty big equity market caps. Nothing is for sure. But I think those are pretty good places to start to deploy. It's going to keep coming and you're going to have to. So just understanding of the pace yourself. - Yeah, I agree, I agree. And I think that's really our conclusion for today. The whole idea is, listen, you're seeing the AI build that. You're seeing it and the tech company bonds themselves. By the way, we didn't really cover this utilities in power, right? It is touching all their sectors. Infrastructure has to be upgraded. We need to generate more power. We talked about data centers, asset-backed. Doesn't matter to these companies whether or not they don't care what they could classify it as. If the asset-back market wants to do one of these deals, whether it's commercial real estate or receivables, that's great infrastructure. But I'm not sure that AI infrastructure is any different than the AI bonds we've been talking about. And then all those things I mentioned are happening both publicly and privately. So again, it sounds like everyone wants to speak about AI, but it matters. It's everywhere. It is the single force that we see driving IG conversations. And if I had to predict from a client perspective, what are the questions we're going to get from our clients in the next couple of months? Can you show us a hundred different ways to break down your AI exposure? Because that is the thing we don't understand. I think that is where we are, as you said. There's also a misconception that typically private risk in public is less risky. A lot of these deals were being financed on the private markets. Until the private market started to demand tighter covenants and higher spreads. And then they went to the public markets. Look at a lot of the data center financings that were done as commercial mortgage loans and now are being wrapped in a $144 bond and being issued out in comp to multiple buyers, where the lease risk is not as tight as it should be. The convexity of the instrument isn't always as tight as it should be. And so I just think that you have to get in the details. Just because it says, well, we like the meta, so it's a deal that was brought a couple weeks ago. But the fact that it says meta, it's not the same as a meta investment grade corporate bond. They're different spreads. It's a different strategy. You have to understand the lease risk. You have to understand what are the tail risks I'm taking on this project that's being built. And so each of these is very nuanced. So I think it's also you have to really will work with our commercial mortgage lending team in detail to go through all the risks. Our high grade capital solutions teams in detail to go through how this is being structured. You can't just buy it because that's the name on the plate. You have to really get in the details of exactly what you're buying. If it's too good to be true, there's probably a good reason why it's being cleared at that level. And Shamel's plug, one of the reasons why we're always out there speaking about sports capital, right? It's so hard to find things that aren't related to it, right? Like it's unlikely that the AI is going to take you to a sporting event anytime soon or replace that. But when you go through the index, you think about other big issuers. So the big banks, the big telecom companies, like everything is being touched by this. And so I do think it's interesting to continue to look for when I'm always begging our traders and originators for find us stuff that we can also buy alongside. It has good spread that doesn't have AI risk. AI is going to run, not just brain. And as it does that, these asset-heavy companies industrial companies, autos, airlines, consumer retail, the energy sector, TMT, what SpaceX is doing in Starlink, so many of these industries are being reinvented. Many of them need pretty big capital infusion. They've made that happen. The defense spending transition is happening. It doesn't have to be only this. So a huge amount of your portfolio can be and should be differentiated still across these asset classes. That's the thing that, again, pacing is really important. - Yeah, as we look ahead to Q4, we've covered AI. I'll give a couple, but let's think about what else might be on the menu. We hinted at this a little bit. I do think it's interesting to look at global yields continuing to struggle to rally. It was one of our thesis is beginning of the year that the Fed would ease that there'd be a little bit of economic weakness here and there. And even in a higher for longer world, [BLANK_AUDIO] the market would say, okay, you know what? Fed central bank hikes are done and therefore I can flatten yield curves, yield can stay. They're not going back to zero, they could stay high-ish, but they would actually normalize to the old normal. It looks like that's not happening. And so one of the things I have, I'm like Q4 dance card, is I'm wondering about this crowding out situation, right? If the US government is going to issue actually unlimited debt, and then the hyperscalers are right behind them. And by the way, eventually Europe's going to figure something out. They have their own deficit problems and some other needs. Obviously, Japan has been a story for a long time. So one of the things I wonder about is do we have to find new clearing levels? I guess the simplest way to say this is capital is still just too cheap if people are going to issue this much. And so our yield is going to go up. That is 100% something I'm worrying about is that issuance matters. And if everyone wants to issue it once, obviously that would clear a higher yield. And so maybe that's where we're going. That's one thought for Q4. Cost of capital has been on a slow and steady pace higher for the last year, and not surprising. It's given combination of, you start a war, AI issues, trillions of hours of debt to finance, a massive cap X, and we want to ensure defense spending, the charge you're still funding a massive budget deficit, rates are going high, yields are going higher. If you're over levered, if you're mismanaging leverage, mismanaging asset liability, if you're betting on a business that is only really going to work in a low rate environment, that's really hard. You have to have revenue growth. So I think the growing businesses are at a premium right now. High cash flowing businesses are at a premium right now, businesses that work on levered. And so when you're messing around too much with how am I going to solve for a return based on financing, that's where I think in this environment where you don't really know what these financing rates are going to end up in a year or two. That's the end of your scheme. What else do you have on your Q4? Dan's card. I think the midterm is going to be really interesting. There's an assumption in the market that AI growth is a bipartisan supported issue big picture because we have to be China. I don't know. These things I think are maybe taken for granted by the equity markets. But anybody on the ground, you talk to anybody outside of the Wall Street circle, there's a lot of concern. And I think you can see that becoming a big issue in the midterms and how that impacts our market. Just given a core that these risks are, it's going to be really interesting. I don't think it's going to be smooth sailing between now and your end. It's going to be exciting. We have midterms. We have big IPOs that are coming. There's a huge counter of debt that's coming in September or October. There's going to be pretty exciting. I agree. Listen, we've been speaking about it. We have convergence happening in real time, a dispersion theme, which we've talked about. Maybe that's peaked a little bit, but it's happening in real time. And I do think that the fact that the market structure is changing, they were asking these questions that people actually do have a chance. I said being forced before, I think that's the wrong way to look at it. People have an opportunity now to say I can choose my fixed income factors better than I ever have before. The menu is as big as it's ever been. And I actually can look at the risks in different ways and I can hedge them in different ways. But I don't really have to, I don't have to own the ag. I don't have to own just money market funds. I don't have to own just the big banks. I think it's a really interesting time. It's been obviously for equity investors having some of these uncapped forever upside trades. But I think there is a clearing level in fixed income as we've been mentioning. We lock in a yield. You sleep well at night. It's a great company and it's been a really long time since investors had that opportunity. So I'm excited to see what happens. It's very rare for this size of part of the economy. The banks are 20 to 25% of the market in the IG market because they're viewed as quasi-sovereign. They have effectively a sovereign backstop. Does that mean that if the largest 5 to 10 public companies in the world become also the largest issuers of debt in the world and everyone owns some exposure to them everywhere, that also is the end game of just increased government, oversight, shaping, regulation, maybe even ownership. That's a really interesting thing to think about the next six to 12 months. So that could create some fireworks. On that note, I think we'll stop. I think we covered it. As you said, it's going to be interesting and I can't wait to update everyone in a couple of months on where we are. Thanks Brian. Thanks John. This podcast was recorded Monday, August 17th, 2026. Thanks for listening. A quick reminder that you can subscribe to this podcast on Spotify, Apple Podcasts and Audible, or by visiting ApolloAcademy.com. Our educational website dedicated to alternative investing, where you can also sign up to have Torson's Daily Spark Economic Blog delivered directly to your inbox. 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