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  • Growth in Private and Public Credit Markets

    Torsten Sløk

    Apollo Chief Economist

    The market value of all US corporate IG bonds outstanding has increased from $3 trillion in 2010 to $9 trillion today, see the first chart.

    Over the same period, the private credit market has grown by $800 billion.

    The bottom line is that public IG markets have since 2010 grown eight times faster than private credit, see the second chart.

    In short, when discussing growth in private credit it is important to also consider the growth in public credit over the same period.

    Public IG market has grown from $3 trillion in 2010 to $9 trillion today
    Source: ICE BofA, Bloomberg, PitchBook LCD, Apollo Chief Economist. Note: Ticker used for HY is H0A0 Index, for IG it is C0A0 Index, and for loans it is SPBDALB Index.
    Source: ICE BofA, PitchBook, Preqin, Bloomberg, Apollo Chief Economist

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  • Working-Age Population Growth In the G7

    Torsten Sløk

    Apollo Chief Economist

    According to the UN, working-age population growth is going to shrink in Europe and Japan over the coming years and increase in the US, UK, and Canada, see chart below.

    Working-age population growth in the G7
    Source: UN Population Statistics, Haver Analytics, Apollo Chief Economist

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  • S&P 500 Looking More Vulnerable

    Torsten Sløk

    Apollo Chief Economist

    The top 10 companies in the S&P 500 make up 35% of the market cap but only 23% of earnings, see chart below.

    This divergence has never been bigger, suggesting that the market is record bullish on future earnings for the top 10 companies in the index.

    In other words, the problem for the S&P 500 today is not only the high concentration but also the record- high bullishness on future earnings from a small group of companies.

    S&P 500: Record-high bullishness on future earnings
    Source: Bloomberg, Apollo Chief Economist

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  • Households have record-high expectations for how much home prices will be going up over the coming five years, see chart below.

    And, as discussed last week, households are also very bullish on the equity market, see here.

    Looking ahead, extreme bullishness about home prices and stock prices makes the economy more vulnerable if asset price inflation stops or reverses.

    Households extremely bullish on future home price appreciation
    Source: University of Michigan, Haver Analytics, Apollo Chief Economist

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  • New White Paper — Mid-Year Credit Outlook

    Torsten Sløk

    Apollo Chief Economist

    Following the recent publication of our Mid-Year Economic Outlook, our credit team published our inaugural Mid-Year Credit Outlook paper yesterday. It’s available here.

    The key themes we explore in this paper are:

    • The buoyant demand for corporate debt that bolstered primary markets this year came alongside pockets of distress in the riskier parts of the market. We expect this divergence to persist through 2024 as demand for high-quality credit keeps index spreads near record tights while a subset of lower-quality corporates struggle with generationally high interest rates.
    • We expect investment grade bonds and BB spreads to remain stable despite tight valuations, given elevated funding costs do not pose a meaningful risk for the credit metrics of these issuers. Meanwhile, the outlook for lower-quality credit is more uncertain and credit spreads across the B/CCC universe could be pressured if the economic backdrop deteriorates or in a higher-for-longer rate environment.
    • The continued evolution of AI and its increased grid and power demand, the disruption of media providers from new technologies and competitors as well as the US elections are all key themes we expect will take center stage throughout the rest of the year.
    • Looking at the investment grade market, there appears to be a rising fragmentation when it comes to liquidity. The most liquid segments of the market have seen an improvement in trading volumes, while the liquidity profile of older vintage and smaller bonds has deteriorated. At the same time, given liquidity premia have compressed, we believe private credit is an attractive replacement for this allocation.
    • The significant growth in middle market lending over the past year has driven an increase in issuance of two types of debt instruments that share some resemblance: middle-market CLOs and BDC unsecured debt. While issued in distinct markets, they have similar underlying risk exposures making their valuations readily comparable. We present a novel analysis comparing the two types of structures.

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  • It is difficult to be negative on the economic outlook when household net worth relative to income is near record high levels, see chart below.

    Household net worth close to all-time highs
    Source: FRB, Haver Analytics, Apollo Chief Economist

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  • Liquidity Deteriorating in Treasury Markets

    Torsten Sløk

    Apollo Chief Economist

    Measures of liquidity in Treasury markets continue to send worrying signals, with the average yield error approaching 4.5, see chart below.

    Source: Bloomberg, Apollo Chief Economist. Note: The index displays the average yield error across the universe of government notes and bonds with remaining maturity of one year or greater, based off the intra-day Bloomberg relative value curve fitter. When liquidity conditions are favorable, the average yield errors are small as any dislocations from fair values are normalized within a short time frame. Average yield error is defined as an aggregate measure for dislocations in Treasury securities across the curve.

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  • Mid-Year Outlook for PE

    Torsten Sløk

    Apollo Chief Economist

    Last week, we published our mid-year outlook, it is available here. For private equity, there are three themes:

    1. Interest rates will remain higher for longer due to strong near-term growth, deglobalization, the energy transition, increased defense spending, rising Treasury issuance, and US fiscal deficits.

    2. With rates higher for longer and growth eventually slowing down, opportunities in private equity will likely continue to emerge among potential distressed companies.

    3. Ongoing uncertainty and volatility in the broader market call for a flexible, value-oriented strategy in private equity. Strategies with the ability to invest opportunistically across the capital stack are well-positioned to capitalize on the shifting fortunes of companies seeking financing in these turbulent times.

    Our private equity chart book is available here.

    See important disclaimers at the bottom of the page.


  • Mid-Year Outlook for Real Assets

    Torsten Sløk

    Apollo Chief Economist

    Last week, we published our mid-year outlook, it is available here. For real assets, there are three themes:

    1. Interest rates will remain higher for longer due to strong near-term growth, deglobalization, the energy transition, increased defense spending, rising Treasury issuance, and US fiscal deficits.

    2. Office remains particularly weak for a variety of reasons, including work from home and higher interest rates, but other real asset sectors are showing resiliency. Secular growth trends continue to persist for industrial, multifamily, as well as specialty areas such as data centers, cold storage, self-storage, and student housing.

    3. The opportunity remains more compelling towards real estate debt than equity on a risk-adjusted basis in the current cycle. Real estate credit can offer a more attractive proposition due to high base interest rates, widening spreads, more protective loan structures, as well as expectations of higher-for-longer rates.

    Our real assets chart book is available here.

    See important disclaimers at the bottom of the page.


  • The FOMC has started to revise higher its estimate of where the fed funds rate will be in the long run. This is likely driven by upward pressures on inflation and rates from deglobalization, the energy transition, more restrictions on immigration, more defense spending, and higher levels of government debt.

    FOMC is revising higher their estimate of the long-run neutral interest rate
    Source: Federal Reserve Board, Apollo Chief Economist

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