Goldman Sachs now expects U.S. dollar investment-grade credit issuance to reach $2.3 trillion this year, raising its previous estimate of $2.1 trillion as companies continue to raise debt to fund artificial intelligence investments. Investment-grade bonds are debt securities rated at the higher end of credit-rating scales, typically issued by large, financially stable corporations—a category that includes the major technology companies now driving issuance. The bank also lifted its net supply projection from $850 billion to $1.0 trillion, and said it anticipates a steady, high volume of activity through 2027, setting its USD IG gross supply estimate for that year at $2.4 trillion.

According to Goldman Sachs' metrics, 24% of year-to-date U.S. investment-grade bond volume has originated from AI-related issuers, pushing the market to historic highs. By contrast, AI issuers accounted for only 6% of European volume, where total issuance grew by just 2% (Goldman Sachs).

Interest rate fluctuations remain the dominant factor

Goldman Sachs expects a strong pickup in market activity in September. In its Thursday report, the bank noted: “Summer slowdown [is] proving elusive—driven in large part by AI-related supply—and market participants are expecting a very busy September.”

Hyperscalers are increasingly tapping EUR investment-grade credit, a move the bank says may narrow the euro's relative technical advantage to the dollar. Even so, Goldman Sachs still expects interest rate fluctuations to remain the dominant factor for total returns, following a year-to-date period of negative performance for both currencies.

Corporate bond spreads have barely moved this year; instead, the jump in U.S. and German government yields has weighed on returns—when benchmark government yields rise, existing bond prices fall, dragging down total returns even for creditworthy issuers. A continuation of current interest rate levels would materially impair returns, the bank said. However, the firm forecasts a coming decline in yields that should alleviate some pressure, though total returns will likely remain below historical benchmarks.

Germany's 10-year yield recently touched its highest level since 2011, while the U.S. 10-year yield reached its highest point since November 2023. According to Goldman Sachs, the yield spike—61 basis points in the U.S. and 52 basis points in Germany—has directly offset a large share of U.S. corporate bond payouts and erased the interest-rate safety net for European corporate debt.

U.S. companies hold roughly $46 billion of bonds in the Eurozone

U.S. companies hold around $46 billion of outstanding bonds in the euro zone, a modest share of the overall market but close to 10% of gross new issuance. Amazon and Alphabet have topped the list of corporate issuers this year.

A European Central Bank blog post suggested that U.S. companies could push up interest rates for all kinds of businesses as they hoard debt. U.S. firms now command such a large chunk of the bond market that the pain could easily spread to government bonds and international agency debt, the blog wrote. The blog's authors also argued that a massive influx of new bonds from tech giants risks overwhelming investor demand. As supply expectations continue to rise, this overcrowding could force companies across the market to pay higher interest rates to attract buyers, especially since investors have only a finite amount of capital to deploy (CNBC).

AI investment is reshaping the corporate bond market

The surge in AI-related borrowing reflects the enormous capital required to build and expand AI infrastructure. Hyperscalers and other technology companies are investing heavily in data centers, advanced computing systems, networking equipment, and energy infrastructure to support the rapid growth of AI applications. Because much of this investment requires significant upfront capital, the corporate bond market has become a key source of financing, allowing companies to develop AI capabilities rapidly without relying solely on cash on hand.

For investors, growing issuance among AI-related companies presents both opportunities and risks. Large technology companies generally have strong balance sheets and significant cash flows, making their debt attractive to investors seeking high-quality corporate bonds. At the same time, the sheer volume of new supply could test how much additional debt the market can absorb without companies having to offer higher yields.

The trend could also influence the broader credit market. If major technology companies continue to dominate new issuance, other corporate borrowers may need to compete more aggressively for investor capital, potentially pushing borrowing costs higher for companies with weaker credit profiles—particularly if government bond yields remain elevated.

Goldman Sachs' higher issuance forecast thus highlights not only the strength of corporate borrowing but also the growing financial footprint of the AI investment cycle. As companies race to expand their AI capabilities, bond investors will increasingly need to assess whether the expected long-term returns on these investments justify the additional debt being accumulated.

Goldman Sachs' Churchman warns of cognitive risks

Even as more companies invest in AI, the technology is not without risks. Goldman Sachs' Marquee head, Chris Churchman, previously expressed concern that over-reliance on artificial intelligence could erode the analytical capabilities of future finance professionals. He argued that escalating dependence on automation could dull practitioners' capacity for foundational logic and independent, raw reasoning.

“There's a huge danger here that in the era of AI, we outsource our reasoning to these models, and we have cognitive atrophy that stops us from being able to reason from first principles ourselves,” Churchman said.

He also stressed that Wall Street needs to adopt AI without destroying its traditional mentorship system, admitting that the bank is still trying to figure out how to use the technology while protecting the real-world wisdom that employees gain only through hands-on experience.