Oct 29, 2026 · 46 min
AI borrowing reshapes credit markets
AI Blitz and US Borrowing Binge Are Disrupting Debt Benchmarks
Rapid issuance from technology companies and the US government is concentrating debt benchmarks just as investors reassess default, rate, and supply risks.
- 1AI and government borrowing are concentrating debt indexes, increasing exposure to technology issuance and benchmark crowding.
- 2Ross Pamphilon expects selective defaults among sponsor-backed borrowers, software companies, and private-credit exposures rather than a crisis-scale surge.
- 3Granular analysis of mortgages, securitized debt, impact bonds, and selected high-yield securities offers alternatives to crowded markets.
Don't miss
Ross Pamphilon explains why the next default cycle could be selective rather than crisis-scale, with stress concentrated among sponsor-backed borrowers, software companies, and private credit.
The brief
The episode opens on a fixed-income market reshaped by heavy borrowing from AI companies, technology firms, and the US government, creating concentration risks inside debt benchmarks.
Ross Pamphilon of Impax Asset Management treats sustainability as a practical risk-and-opportunity lens, applying it to energy, water, permitting, disclosure quality, and resource efficiency.
AI and data-center credit receive close scrutiny: emissions, power use, water demand, and unreliable corporate disclosures can matter as much as the technology story.
Pamphilon’s wall of worry includes high financing costs, Treasury yields, crowded AI issuance, and a possible default cycle concentrated in sponsor-backed borrowers, software, and private credit.
Rather than forecast a crisis, he expects selective normalization and favors granular opportunities in mortgages, securitized investment-grade debt, impact bonds, and carefully chosen high yield.
What was said on this episode
42 statements · 11 positive · 27 negative · 2 mixed · 2 neutral
- Ross Pamphilonon Credit-market interest ratesNegative5:55
Large fiscal deficits and inflationary pressures have reset credit-market interest rates.
“So we think the market has rebased in terms of interest rates, largely due to large fiscal deficits and inflationary pressures.”
Listen at 5:55
- Ross Pamphilonon Governance analysisPositive9:07
Governance analysis can provide insights and help avoid credit blowups.
“So we think, you know, from time to time, not only would that give us useful insights, but it helps to avoid the blowups.”
Listen at 9:07
- Ross Pamphilonon Sustainability analysisPositive10:20
Sustainability analysis provides Impax with unique investment insight.
“It does give us a unique insight.”
Listen at 10:20
The US Aggregate Index has become increasingly concentrated in US Treasuries.
“benchmarks say the US Ag Index has become... more and more concentrated in U.S. Treasuries”
Listen at 13:57
- Ross Pamphilonon US Aggregate Index U.S. Treasury allocationNegative14:04
U.S. Treasury allocation in the US Aggregate Index has risen toward 50%.
“10, 15 years ago, perhaps the allocation to U.S. Treasuries was 20 to 30 percent and now it's approaching 50 percent.”
Listen at 14:04
US fiscal deficits and heavy issuance may crowd out other sectors from US Treasuries.
“given the fiscal deficit and the heavy issuance and perhaps the crowding out of U.S. Treasuries by other sectors”
Listen at 14:22
Data centers are becoming more energy efficient.
“the issue with data centers is they are becoming more efficient.”
Listen at 15:25
Nvidia GPUs likely consume roughly twice as much energy each release cycle.
“they use a lot more energy probably double the energy uh each cycle as well”
Listen at 15:47
- Ross Pamphilonon OpenAI and AnthropicNegative18:04
OpenAI and Anthropic currently lack particularly strong competitive moats.
“neither OpenAI nor Anthropic, maybe Anthropic's got a stronger moat on the coding side, but neither have particularly strong moats”
Listen at 18:04
- Ross Pamphilonon AI token costsNegative18:14
AI token costs have been falling dramatically.
“the cost of tokens has been falling dramatically”
Listen at 18:14
- Ross Pamphilonon AI token costsNegative18:14
AI token costs have been falling dramatically.
“the cost of tokens has been falling dramatically.”
Listen at 18:14
Oracle is a weak link, and a downgrade to junk would materially disrupt high yield.
“Oracle is is a weak link BBB minus $120 billion or so of investment-grade rated debt. If that were to go to junk, that would be a big issue in a high-yield market”
Listen at 18:55
An Oracle downgrade to junk would materially disrupt high-yield markets.
“If that were to go to junk, that would be a big issue in a high-yield market”
Listen at 19:02
- Ross Pamphilonon CoreWeave senior unsecured bondsNegative19:51
CoreWeave’s 15.5% senior-unsecured yield appears unsustainable.
“yields are 15.5% for senior unsecured. do not feel sustainable.”
Listen at 19:51
- Ross Pamphilonon US software issuers refinancing in 2027–2028Negative24:06
Many software issuers maturing in 2027–2028 will struggle to refinance without fresh capital.
“a lot of those names are just going to struggle to get refinanced absent of perhaps some fresh capital.”
Listen at 24:06
- Ross Pamphilonon financing recessionNegative24:28
A financing recession is more likely than an earnings recession.
“we don't see an earnings recession. But we see more of a financing recession”
Listen at 24:28
- Ross Pamphilonon Credit-market financing conditionsNegative24:30
Credit markets are more likely to experience a financing recession than an earnings recession.
“But we see more of a financing recession.”
Listen at 24:30
Selected non-QM, jumbo, and non-agency mortgage securities look attractive.
“So they look a little bit more interesting to us.”
Listen at 25:33
- Ross Pamphilonon US software debt maturitiesNegative28:46
“So some of that I think might be problematic.”
Listen at 28:46
- Ross Pamphilonon US leveraged finance marketNegative29:43
Most default-cycle pain will occur in US leveraged markets, especially software.
“most of the pain is going to be in the low market, more US than Europe because of its software concentration”
Listen at 29:43
- Ross Pamphilonon Credit default cycleNegative30:09
The coming default cycle will be relatively shallow.
“So I think it's going to be quite a shallow default cycle.”
Listen at 30:09
- Ross Pamphilonon 2026 US high-yield marketNeutral31:20
Roughly 55–60% of the 2026 US high-yield market is rated double-B.
“55% or so. or 60%, close to 60% is in double Bs.”
Listen at 31:20
- Ross Pamphilonon US high-yield marketMixed31:31
The double-B core of high yield will likely remain sound, with modest spread widening.
“the core of the market will most likely be fine. We'll see a bit of spread widening”
Listen at 31:31
- Ross Pamphilonon US high-yield spreadsNegative31:44
US high-yield spreads may peak near 450 basis points within six months.
“we were thinking perhaps a nearer term, say now to six months peak for high yield spreads in the region of 450 basis points.”
Listen at 31:44
- Ross Pamphilonon Senior prime mortgage securitiesPositive33:26
Senior prime mortgage securities offer better investment quality than several consumer-credit categories.
“To us that's a much better place to invest in say some of the areas of say you know auto loans you know credit cards, credit card receivables, student loans”
Listen at 33:26
- Ross Pamphilonon AAA jumbo non-agency mortgagesPositive34:04
AAA jumbo non-agency mortgages offer attractive spreads relative to corporates.
“AAA, five-year jumbo, non-agency mortgages, spreads in the region of 180 basis points. To us, they're very attractive relative to corporates”
Listen at 34:04
- Ross Pamphilonon Hyperscaler ABSPositive35:42
Hyperscaler ABS is becoming more attractive after repricing.
“And hyperscaler ABS is now starting to look a little bit more attractive.”
Listen at 35:42
- Ross Pamphilonon hyperscaler ABSPositive35:42
Hyperscaler ABS is becoming more attractive to credit investors.
“hyperscaler ABS is now starting to look a little bit more attractive”
Listen at 35:42
- Ross Pamphilonon 2027 credit marketsNegative37:11
The main 2027 risks are selective defaults driven by financing costs and supply technicals.
“the biggest risk is uh just the market being but we've covered i think the default risk which is more selective driven by the the overall level of cost of financing The other one is just the supply technicals”
Listen at 37:11
- Ross Pamphilonon Global AI-related credit issuanceNeutral37:24
Global credit markets have seen nearly $700 billion of AI-related issuance.
“we've had close to 700 billion of AI related issuance across global credit markets.”
Listen at 37:24
- Ross Pamphilonon AI-related credit issuanceNegative37:34
AI-related credit issuance is expected to double in 2027.
“That's what we're going to double next year.”
Listen at 37:34
- Ross Pamphilonon AI-related credit issuanceNegative37:55
Rapid AI-related issuance creates a risk of market saturation.
“And I think there's a risk of saturation.”
Listen at 37:55
- Ross Pamphilonon AI-related credit issuanceNegative37:56
AI-related credit issuance faces a risk of market saturation.
“I think there's a risk of saturation”
Listen at 37:56
- Ross Pamphilonon AI infrastructure financingPositive38:32
A healthier AI financing mix would pair robust compute demand with more equity financing.
“ideally, you know, you would see sort of CapEx flat or Model C up, demand being robust for compute, but more equity financing.”
Listen at 38:32
- Ross Pamphilonon AI infrastructure capex financingNegative38:50
The worst AI financing outcome is accelerating capex funded increasingly by expensive debt.
“the worst case will be CapEx accelerating, funded more and more by expensive debt.”
Listen at 38:50
- Ross Pamphilonon US investment-grade indexNegative39:40
AI and AI-related debt comprises roughly 12% of the US investment-grade index.
“We calculate around 12% of the US investment grade index is now AI and AI related.”
Listen at 39:40
- Ross Pamphilonon US investment-grade indexNegative39:41
AI-related securities comprise about 12% of the US investment-grade index, including 4% hyperscalers.
“around 12% of the US investment grade index is now AI and AI related. Around 4% of that is just the hyperscalers”
Listen at 39:41
Benchmark-aligned investors will own substantial Treasury and technology exposure.
“you're going to end up owning. A lot of US treasuries, if you're in the ag index, and a lot of tech, if you're in the US investment grade index”
Listen at 40:00
- Ross Pamphilonon benchmark-based credit managementNegative40:09
Benchmark-based credit management may no longer make sense amid issuance changes.
“we're actually starting to think about whether managing first as a benchmark makes a whole heap of sense”
Listen at 40:09
- Ross Pamphilonon Issuer-level sustainability researchPositive42:02
Issuer-level sustainability research can help credit investors avoid losing investments.
“integrating your sustainability research on our obligor by obligor level for us as credit investors will help us to avoid the losers we believe and therefore win by not losing.”
Listen at 42:02
- Ross Pamphilonon Sustainability analysisPositive42:30
Sustainability analysis creates additional opportunities such as impact bonds.
“It does create new opportunity sets like impact bonds.”
Listen at 42:30
- Ross Pamphilonon Sustainability analysisMixed43:08
Sustainability analysis does not materially increase alpha but does not detract from performance.
“I'm not going to say here that it adds a huge amount of alpha, but it certainly doesn't detract.”
Listen at 43:08
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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