GS IG Credit Week in Review AI CDS Update

GS: IG Credit Week in Review & AI CDS Update

Revitalized risk appetite characterized the week as equities led a rebound in risk assets to make new all-time highs despite some nervousness in the treasury market around a disappointing Friday payroll print (-23k jobs vs +80k expected). The S&P500 finished the week +3.6%, while the NASDAQ ended +5.1%, and UST 10yr yields closed -9bps. The AI ecosystem remained in focus this week as GOOGL issued $25bn across an 8-part deal on Thursday. Away from GOOGL, it was a busy week of primary market activity in non-AI related credits as a total of $80.2bn was issued in IG including larger deals from ABBV ($10bn), HSBC ($6.75bn) and (CHTR ($4.75bn).

Market participants had expected a GOOGL deal to come to the market for some time, and it was reasonably well received. The 30y bond priced with a 15-20bp new issue concession (+115) and closed the week 7bps tighter from pricing (+108). On the week, the GS AI basket outperformed closing -2.8bps tighter compared to our GS IG100 broad based basket which finished -1.8bps tighter.

Despite the local outperformance of AI credit last week, the market continues to trade two distinct underlying segments -- AI credit and everything else. The relative YTD performance of different GS baskets reveals this drastic relative sector performance.

GS Baskets Index Spread 5d 1m YTD

**At the topline, IG credit spreads do not look like much has happened this IG 100 GSUCI year… our broad credit basket is unchanged

**Front end outperformance YTD IG 5y GSIG05AS 71 -2.3 1.6 -4.2 driven by yield buying and an ability for clients to capture roll down

**YTD Curve steepening continues IG 30y GSIG30AS given the hyperscaler's appetite for issuing longer duration bonds

Rating Baskets Index Spread 5d 1m YTD

**The AA basket underperformance is Aa GS2AATAS very clear

**BBB credit concerns remain minimal BBB GS3BATAS outside of a few select idiosyncratic stories

Sector Baskets Index Spread 5d 1m YTD

**Stark YTD underperformance vs Ai GSUCAIBK every other basket

**This basket includes META, GOOGL, Communications GSIGATCO and SPCX

**No concerns in cyclicals which Consumer GSIGATCC aligns with the strong performance of Cyclicals the BBB basket relative to AA

Consumer GSIGATCN Noncyclicals

- **The clear outperforming basket this Energy GSIGATEN year

Money Center **The market is slowly categorizing GSUCIBNK Banks U.S. banks as an AI-adjacent sector

**Generic TMT has been pulled wider TMT GSIGATTC by AI credits

**Yankee spreads have outperformed as the market perceives non-U.S. Yankees GSUCIYAF banks to be less involved in AI financing