Oct 16, 2026 · 1h 22m
AI spending tests bonds, deficits and private credit
Financing In The AI Boom: Masters in Business with Bob Michele
The financing demands of artificial intelligence are colliding with normalized rates, fiscal pressure and a less predictable policy regime.
- 1Normalized interest rates restore a meaningful cost of capital and make bond selection more consequential.
- 2AI-driven data-center investment is expanding financing needs while private credit grows as a major non-bank lending channel.
- 3Deficits, inflation risks and political uncertainty could reshape yields even as global bond markets offer selective opportunities.
Don't miss
Michael connects AI’s data-center buildout to a surge in financing demand and explains why private credit is positioned to supply part of it.
The brief
Bob Michael’s route from pre-med studies into fixed income shaped an analytical investment style built around valuation, yield and portfolio construction.
He argues that bonds reward active management because their risks vary sharply across issuers, maturities, currencies and credit structures, unlike a simple benchmark.
The conversation treats normalized rates as a return to capital having a meaningful cost, while inflation, deficits and Federal Reserve uncertainty complicate the outlook.
AI is creating enormous financing needs for hyperscalers and data centers, accelerating private credit’s role as a non-bank source of capital.
Michael’s career advice follows the market discussion: investors should learn AI tools without abandoning judgment, fiduciary responsibility or the willingness to take thoughtful risks.
What was said on this episode
32 statements · 20 positive · 6 negative · 2 mixed · 4 neutral
Michael expects his team to outperform fixed-income benchmarks almost all the time.
“So my expectation of my team is that almost all the time they will outperform the benchmark.”
Listen at 9:19
Healthy global business conditions raise growth, inflation, and bond yields.
“If it's a healthy business, then probably there are going to be some growth and inflationary pressures. Bond yields will be a little higher.”
Listen at 20:42
The euro’s monetary union without fiscal union is problematic.
“And then ultimately, we learned monetary union without fiscal union isn't so good.”
Listen at 23:11
The U.S. dollar is currently the only viable reserve currency.
“So today we sit here and really... The dollar is the only reserve currency out there.”
Listen at 24:11
Bitcoin and crypto constitute an alternative asset class and store of value.
“I think it's an alternate asset class. And I think it is a store of value.”
Listen at 26:42
Treasury-backed, Federal Reserve-supported digital dollars in stablecoins are almost inevitable.
“I do see digital dollar in the stable coin world with the backing of the Treasury the support of the Federal Reserve to me that's almost inevitable”
Listen at 27:33
Holding dollars uninvested causes their value to depreciate with inflation.
“if you just sit there with a load of dollars, as you say, they're depreciating by at least the rate of inflation.”
Listen at 28:16
The economy is returning to an environment with a meaningful positive neutral policy rate.
“I think that's a world we're headed back to and we're in.”
Listen at 30:11
The Federal Reserve’s policy rate should be roughly 3% to 6%.
“I do think somewhere in the 3% to 6% range strikes me as where the Fed should be.”
Listen at 32:07
The current Federal Reserve will prioritize inflation vigilance over growth.
“I expect this Fed to be more vigilant on inflation than growth.”
Listen at 35:10
The Federal Reserve will raise rates substantially if inflation effects broaden.
“And if they have to respond with much higher rates, they will.”
Listen at 38:14
AI infrastructure capacity is currently insufficient to meet demand.
“The ability to deliver capacity to meet that demand is super low.”
Listen at 44:41
AI could produce major additional effects within five years.
“I'm excited about what it could do five years from now.”
Listen at 46:06
Private credit has created a legitimate non-bank lending channel.
“I love the fact that a legitimate non-bank lending channel has. been opened up”
Listen at 48:45
Convergence between public and private credit is healthy for bond markets.
“I think it's healthy for the bond markets”
Listen at 50:32
Local emerging-market debt is currently an especially attractive investment opportunity.
“So that's the hidden gem in our portfolios today is local emerging market debt.”
Listen at 56:13
Emerging-market authorities are managing monetary policy effectively.
“The authorities are doing a great job in those countries.”
Listen at 56:19
Michael’s portfolios hold debt from Mexico, Colombia, Brazil, Czechia, and Poland.
“We own Mexico. We own Colombia. We own Brazil. Then you mix in a little Eastern European, so Czech and Poland.”
Listen at 56:31
The selected emerging-market sovereign debt basket is attractive.
“So that's pretty attractive for Sovereign.”
Listen at 57:04
TIPS pricing implies inflation expectations of 2.35%, which are well anchored.
“TIPS are embedding in inflation expectations of 2.35%. That's really well anchored.”
Listen at 58:05
Real yields embedded in TIPS are 2.9%, unusually high versus recent history.
“That's at 2.9%. You have to go back to the dot-com era to find real yields that high.”
Listen at 58:16
The recent decline in municipal bond prices has gone too far.
“We think it's gone too far.”
Listen at 1:00:16
Municipal bond tax-loss selling has created an attractive buying opportunity.
“That's created a pretty good buying opportunity for us.”
Listen at 1:00:45
Current capital expenditure growth extends beyond artificial intelligence.
“We see CapEx as being more broadly based than simply AI.”
Listen at 1:02:54
Fixed-income investing should prioritize capital preservation and reasonable coupon income.
“For us in fixed income, it's to ensure that you get your capital back, plus you get a reasonable income stream, coupon payments.”
Listen at 1:05:08
Investors should avoid marginal borrowers with problematic business models.
“So I don't want to reach too far for the marginal borrower that has a problematic business model and roll the dice.”
Listen at 1:05:21
Donald Trump is unlikely to retain congressional control during his presidency.
“It looks unlikely that he's going to retain Congress.”
Listen at 1:06:17
The end of fiscal stimulus could alter the economic trajectory.
“What happens when there's no more fiscal stimulus?”
Listen at 1:06:45
The 1991 birth cohort will dominate earning, spending, and saving over the next 20 years.
“The 1991 births and surrounding cohorts. They're 35 this year. So they are on that journey for the next 20 years.”
Listen at 1:07:29
The next decade-plus should be favorable overall but include economic setbacks.
“I think the next decade plus looks pretty good, but it's not going to be a perfect straight line.”
Listen at 1:09:28
J.P. Morgan evaluates university candidates partly by their AI proficiency.
“Those that we're interviewing for our platform now who are in college or university, we're seeing how AI-enabled they are.”
Listen at 1:17:41
Fixed-income investors should accept some investment risk.
“I think it's okay to take risks.”
Listen at 1:18:20
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.
Books & mentions
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