In a September 2026 research presentation, Apollo Global Management's Shobhit Gupta and Torsten Slok 1 lay out a case that is as urgent as it is structural: interest rates are rising for reasons that have little to do with the traditional business cycle, and the implications for credit markets are both consequential and, in key respects, surprisingly constructive.
The presentation is organized around two questions. First, what is driving the current rates move? Second, what does a higher-for-longer rate environment mean for credit? The answers to both questions are interconnected, and the connections matter.
A Multivariable Problem
On the question of why rates are rising, Gupta and Slok draw a clear distinction between cyclical and structural pressures. The cyclical drivers are familiar: a strong economy, high sticky inflation, elevated energy costs, and the inflationary impulse of the AI buildout. These alone would argue for rates remaining elevated relative to the post-2008 era.
But the structural forces are what make the current environment genuinely different. Apollo identifies "upward pressure on rates for reasons unrelated to the business cycle" that include fiscal sustainability concerns, a declining institutional and household appetite for long-duration Treasuries, rising r-star, worries about Federal Reserve Chair Warsh's independence, and a novel dynamic: hyperscalers issuing investment grade debt at record volumes and simultaneously holding fewer Treasuries. Each of these factors is independently significant. Together, they represent a fundamentally altered demand picture for U.S. government debt.
The data on Treasury demand is stark. ETF flow data from September 2024 through September 2026 shows long-duration Treasury ETFs in sustained outflows while ultra-short Treasury ETFs have attracted more than $75 billion in cumulative inflows over the same period. At the same time, the share of Treasuries held by official institutions, including the Federal Reserve and foreign central banks, has fallen toward 40 percent, with private investors picking up a growing share. Those private investors, unlike central banks, are price-sensitive. As Apollo notes, "the US Treasury buyer base is becoming more interest rate sensitive," which means the market-clearing yield for Treasuries at elevated supply must move structurally higher.
The supply side of the equation reinforces this. Treasury auction sizes have increased across every maturity, from 2-year to 30-year. The Congressional Budget Office projects federal debt held by the public rising toward 175 percent of GDP by 2060 under current policies. Recent 5-year auctions have shown auction tails, indicating weak demand relative to supply, and the bid-to-cover ratio on 5-year notes has declined meaningfully since its 2023 peak.
The Hyperscaler Variable
One of the more distinctive threads in the Apollo analysis concerns the role of hyperscalers in reshaping the IG credit market. To finance surging capex needs, companies including Microsoft, Amazon, Alphabet, Meta, Oracle, and SpaceX have issued nearly $250 billion in IG debt in 2026 alone, exceeding the cumulative total of the prior decade. AI-related issuers now account for more than 54 percent of net IG issuance year to date.
This matters for rates because hyperscaler IG debt is crowding out demand for Treasuries at the belly of the curve. When yield-hungry investors have a choice between 5-year Treasuries and 5-year paper from Microsoft or Amazon at a spread, the marginal demand for Treasuries weakens, pushing their yields higher. Apollo maps this dynamic directly onto the yield curve, noting "upward pressure on the belly because of hyperscaler issuance," alongside front-end pressure from inflation and long-end pressure from fiscal concerns.
Gupta and Slok are also explicit that this supply wave is unlikely to slow. Hyperscalers and chipmakers could issue up to $1 trillion more in IG index debt, and strong balance sheets could support an additional $1 to $3 trillion in off-balance-sheet capacity while remaining IG rated. Private markets, Apollo concludes, will be required as public market capacity reaches its limits.
Three Engines, One Direction
Apollo identifies three engines of U.S. growth driving the current macro backdrop: AI spending (datacenters, energy infrastructure, and productivity gains), an industrial renaissance in semiconductors, pharmaceuticals, and defense, and the fiscal stimulus embedded in the One Big Beautiful Bill, including lower household taxes, 100 percent immediate expensing, and defense and infrastructure investment. This growth backdrop supports the case for continued rates elevation at the front end.
Credit: Rich Spreads, Attractive Yields
On the credit implications, the picture is nuanced. Credit spreads are near all-time tights: US High Yield currently sits at 274 basis points versus a 10-year average of 386 basis points, and US Investment Grade at 76 basis points against a 10-year average of 115 basis points. On a spread basis alone, valuations look historically rich.
Yet all-in yields tell a different story. Apollo notes that current yields remain well above 10-year averages across virtually every fixed income segment, from 5.1 percent on US Treasuries to 9.8 percent on leveraged loans. The observation is direct: "yield-driven demand has historically limited how far spreads widen, even during periods of volatility." The gap between historically tight spreads and historically attractive absolute yields has provided a durable technical floor for credit.
The risks, however, are real. Rising rates have pushed bond-equity correlation into positive territory, meaning bonds are no longer reliably providing the hedging benefit traditional portfolio construction assumed. As Apollo puts it, "rising rates and inflation pose a risk to segments of the credit market." Duration-sensitive credit, particularly long-dated investment grade, faces mark-to-market headwinds in a continued rates-rising environment.
Fed Repricing
Perhaps the most striking single data point in the presentation is the shift in Fed funds futures pricing. At the beginning of this rate cycle, markets were pricing four rate cuts in 2026. By September 2026, the market-implied path has swung to two rate hikes. The pivot in expectations, captured in a Bloomberg/Macrobond chart, is one of the most dramatic re-pricings in recent Fed history and is the direct product of the macro forces Apollo has catalogued.
5 Key Takeaways for Advisors and Investors
- Duration risk is structural, not transitory. The forces pushing yields higher, including fiscal deficits, declining official sector demand, and hyperscaler supply, are not cyclical. Investors with significant long-duration fixed income exposure should assess their positioning carefully against a higher-for-longer backdrop.
- All-in yields remain the case for credit. Despite tight spreads, absolute yields across IG, HY, ABS, and leveraged loans are well above decade averages. The income argument for credit remains intact even as the spread argument has weakened.
- The hyperscaler IG wave is a new structural force. AI-related IG issuance now accounts for more than half of net IG supply. This supply wave will keep upward pressure on belly-of-curve yields and represents a permanent shift in how the investment grade market functions.
- Bond-equity correlation has flipped. The traditional assumption that bonds buffer equity drawdowns is less reliable in an inflationary, higher-rate environment. Portfolio construction that relies on negative stock-bond correlation should be revisited.
- Private credit may fill the gap public markets cannot. As hyperscaler financing needs exceed IG index capacity, private markets are increasingly where the incremental financing opportunity resides. Advisors should be aware that this structural shift is already underway and is likely to accelerate.
Footnote:
1 Gupta, Shobhit, and Torsten Slok. Recent Rates Volatility: Risks and Opportunities in Credit. Apollo Global Management, Sept. 2026, apollo.com/content/dam/apolloaem/pdf/daily-spark/2026/sep/26/RecentRatesVolatilityRisksandOpportunities_V5.pdf. Accessed 30 Sept. 2026.
