Despite forecasts of over $2 trillion in corporate bond issuance driven by AI spending, net supply is down 20% year-over-year after accounting for maturities and coupon payments. Record inflows into high-grade funds are effectively absorbing this new debt, keeping the supply/demand dynamic in balance.

Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

With traditional fixed income underperforming, investors seeking yield have flocked to vehicles that generate income by selling equity options. This creates a massive, systematic supply of volatility into the market, which suppresses volatility and encourages "buy the dip" behavior once initial shocks subside.

A fundamental reason for differing investor behavior is the unit of discussion. Bond investors focus on forward-looking yields, which naturally fosters a contrarian, mean-reverting mindset. Equity investors focus on backward-looking prices and returns, leading them to extrapolate recent trends and chase momentum.

Concerns over US term premium have receded partly because the Treasury buyer base has stabilized. The declining share of price-insensitive buyers (Fed, foreign investors, banks), which fell from 75% to 50% over a decade, has finally stopped falling, creating a more supportive demand backdrop.

A surge in European retail investment into Fixed Maturity Products (FMPs) creates a stable, long-term demand base for short-dated corporate bonds. This "locked-up" capital anchors the short end of the curve, providing stability during volatile periods and potentially distorting risk pricing.

While fears of retail investors gambling on venture capital exist, the primary growth in retail alternatives is in yield-oriented strategies like private credit and infrastructure. These products meet the demand for high current income and lower volatility, especially for those in or near retirement, making them a more logical first step.

A steep yield curve makes fixed annuities more attractive for consumers. Life insurers sell more of these products and invest the proceeds into spread assets like corporate bonds, creating a powerful, non-obvious demand driver for the credit markets.

The modern high-yield market is structurally different from its past. It's now composed of higher-quality issuers and has a shorter duration profile. While this limits potential upside returns compared to historical cycles, it also provides a cushion, capping the potential downside risk for investors.