Credit is pushing equity issuance

Credit is flashing amber. Equity is being asked to pay the bill.

Two charts, one story.

📈 Lower-quality credit (CAA-B OAS) has climbed to ~780bp. That's close to the 2016 peak, and every prior peak was met with policy support: global QE in 2008 and 2020, the ECB's CSPP in 2016.

📈 Meanwhile, net equity issuance just turned sharply positive. Q2 2026 is roughly $150bn, the biggest print in the series since 1997 and about three times the 2000 and 2021 peaks. For years, buybacks drained equity supply. That tide has turned.

Why these are connected:

Hyperscaler CapEx is enormous, and the debt market is getting pricier at the margin. When spreads widen, funding AI infrastructure with more debt gets more expensive and puts AAA/AA balance sheets at risk. So the next dollar increasingly comes from equity. Issuing stock to defend the credit rating is a tell: the cost of capital is rising, not falling.

The risk: supply is the enemy of valuations. Equity markets that rallied on shrinking share counts now face the opposite. Rising spreads plus rising supply is a cocktail we last saw around 2000.

What comes next? Three scenarios:

1️⃣ Orderly digestion. Spreads plateau, equity absorbs the supply, and CapEx gets more selective. Returns on AI spend, not growth, become the focus.

2️⃣ Credit accident. Weak CCC/B issuers hit a refinancing wall and defaults spike. Equity is forced to reprice, and the two markets feed each other.

3️⃣ Policy put. Spreads at these levels have historically triggered a response: rate cuts first, and if stress persists, QE or credit-purchase programs.

The pattern on the chart is hard to ignore, and so is the question mark at the end of it.

The bottom line: the policy put is the base case, but it's not free. Central banks acting into a supply-heavy equity market means the "cure" may reignite inflation concerns.

Spreads are the canary. Issuance is the signal. Watch both.

Want to know more? You can register for free at Fund@mental.

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation