The Impact of Student Loan Delinquency on FICO Scores

When households stop paying their student loans, their credit scores will go down. The chart below shows that for households with a FICO score higher than 760, the average credit score change associated with a new student loan delinquency is a decline of 171 points.

Forty-five million people have a student loan, and about 11 million, or 25%, are either in default or more than 90 days delinquent.

The bottom line is that the US consumer is facing headwinds from student loan payments restarting, see also here.

Households with higher FICO scores are harder hit when not paying their student loans
Sources: Credit Score Impacts from Past Due Student Loan Payments – Liberty Street Economics, Apollo Chief Economist

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Daily Data for Consumer Spending

Consumer spending is under downward pressure from slowing job growth, student loan payments restarting and deportations lowering the number of consumers.

To carefully monitor these headwinds, we have put together this chart book with daily data for consumer spending on discretionary spending/essentials and consumer spending impacted by tariffs/not impacted by tariffs.

We will update and publish this chart book once a week going forward.

Daily data for consumer spending: Still holding up
Sources: US Bloomberg Second Measure Consumer Spending, Macrobond, Apollo Chief Economist

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Why Is the Yield Curve Steepening?

The US yield curve has started steepening, not only 2s10s but also 10s30s, see the first chart below.

There are three reasons why this is happening:

1. The Fed is cutting rates.

2. If the market thinks the Fed is cutting for political reasons, it puts upward pressure on inflation expectations and ultimately long rates, which also steepens the curve, see the second chart.

3. Growing Treasury issuance is putting upward pressure on long rates, see the third chart.

If Fed Chair Powell, in his Jackson Hole speech on Friday, is going to signal less commitment to the Fed’s 2% inflation target, the curve will steepen further.

We have put together a chart book looking at this topic, including some of the recent weakness in Treasury auctions. It is available here.

Spread between 30s and 10s continues to widen
Sources: Bloomberg, Macrobond, Apollo Chief Economist
The market is pricing that inflation in one year will be 3.3%, significantly above the Fed’s 2% target
Note: Ticker used USSWIT1 Currency. Sources: Bloomberg, Macrobond, Apollo Chief Economist
The term premium is rising likely driven by fiscal worries
Note: The NY Fed measure for the term premium is based on a five-factor, no-arbitrage term structure model. Sources: Federal Reserve Bank of New York, Macrobond, Apollo Chief Economist
Why is the yield curve steepening? Because of coming Fed cuts and fiscal challenges

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Similar Contribution to GDP Growth From Consumer Spending and Data Center Investments

Consumer spending makes up 70% of GDP, and private consumption is usually the key driver of GDP growth.

But that has changed in 2025.

Over the first half of this year, the contribution to GDP growth from data center investments has been the same as the contribution from consumer spending, see chart below. The contribution from consumer spending has been decreasing, and the contribution from data center construction has been increasing.

Contribution to GDP from consumer spending and data center investments
Sources: US Bureau of Economic Analysis (BEA), Macrobond, Apollo Chief Economist

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Tech Is Vulnerable

AI will have a significant impact on our lives and productivity. But that doesn’t mean that the tech companies in the S&P 500 are correctly priced.

The P/E ratio for Tesla is almost 200, and the P/E ratio for Nvidia is around 60. Many software companies are likely to go out of business because of ChatGPT.

The bottom line is that it is not clear that the tech stocks in the S&P 500 are the best choices when investing in the AI theme, and the chart below shows that the situation today is surprisingly similar to the IT bubble in the 1990s.

S&P 500: The situation today is surprisingly similar to the IT bubble in the 1990s
Sources: Bloomberg, Apollo Chief Economist

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Credit Market Outlook

Solid macro and corporate fundamentals, coupled with persistent institutional demand and limited net new supply, have anchored credit spreads and performance. While downside risks have increased, we expect fundamentals and technicals to remain supportive through year-end. Our latest credit market outlook write-up is available here, and our latest credit market chart book is available here.

85% of bonds in the world trading at less than 5% yield
Note: Data as of August 10, 2025. Sources: Bloomberg, Apollo Chief Economist

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The ABCs of BDCs

As investor appetite for income and private credit exposure grows, BDCs remain a powerful tool—but higher-for-longer rates, credit concerns, and shifting portfolio dynamics are making manager selection more critical than ever.

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Key Takeaways

  • Business development companies (BDCs) have long offered investors an attractive blend of income potential, private market exposure, and access to the engine of the US middle market. Their structure—designed to distribute the majority of taxable income—can make them an attractive option for income-seeking investors across market cycles.
  • Looking ahead, some investors are concerned that the higher-for-longer rate environment, rising borrower stress, and diminishing credit cushions could trigger a wave of distribution cuts if portfolio performance weakens.
  • This piece highlights how BDCs are structured, where they differ and what current market conditions could potentially signal about the evolving opportunity set.

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The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the authors and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information.


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Headwinds to the US Consumer

Container ship departures from China to the US are collapsing, see the first chart.

When consumers cannot get the products that they want from abroad, and the products that are imported are more expensive because of tariffs, the outcome is a slowdown in US consumer spending, see the second chart.

The bottom line is that US consumer spending is facing headwinds from tariffs, relatively high interest rates, student loan payments restarting and deportations lowering the number of consumers.

Container ship departures from China to the US are collapsing
Note: Displays the estimated number of container vessels departing China for the United States, focusing on dry cargo ships. Aggregates data using a 15-day rolling average to reduce short-term volatility and provide a clearer view of broader trends in vessel activity. Sources: Bloomberg, Macrobond, Apollo Chief Economist
The decline in total shipping into the US is pulling down consumer spending
Sources: US Census Bureau, Bloomberg, Apollo Chief Economist

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The View from Apollo - A New Podcast Series

The Asset-Backed Finance Market Is Having a Moment

In 2025’s turbulent market environment, one corner of private credit is enjoying its moment in the sun: asset-backed finance. In this episode of The View from Apollo, Bret Leas, Apollo’s Co-Head of Asset-Backed Finance, explains how this estimated $20 trillion global market works.