Hello, and welcome to the Weekly Fix. My name is Anne Greenwood, Institutional Portfolio Manager at RBC Global Asset Management.

This week, we're looking at why today's demand for capital is creating value in public fixed income markets—and how we're positioned to capture it.

The world has big plans—and a growing financing bill. Governments need to borrow. Companies are pursuing major acquisitions. And the AI revolution needs data centers, electricity, and trillions of dollars of infrastructure. Someone needs to supply that capital.

And when financing needs grow faster than investors' willingness to fund them, the balance of power can shift toward lenders. That means greater scope to be selective—to require more income, stronger protections, or both. We are already seeing borrowers offer greater compensation to attract investors even as headline credit spreads remain relatively tight.

We see this most acutely in AI-related debt where issuers like Amazon and Alphabet, known for their balance sheet strength and high-quality credit ratings, recently issued 10-year bonds trade around 30 basis points wider than their AA peers.

We also see it outside of the AI ecosystem as large M&A deals are requiring higher clearing levels to attract investors. Take Paramount's over $50bn bond and loan sale to finance the acquisition of Warner Brothers. The deal came at a meaningful concession, and today, the BB rated second lien bonds are yielding over 10%.

Even governments aren't immune from this competition for capital as yields on government debt globally continue to march upward. But rising borrowing costs also create an opportunity: what borrowers pay, lenders earn.

Higher starting yields allow investors to earn more income from high-quality bonds, reducing the need to take substantial credit risk to achieve meaningful returns. But a high coupon is only as good as an issuer's ability and willingness to pay it. Not every bond offering a wide spread is a good investment. Disciplined credit selection remains essential to capture the additional income while avoiding permanent losses. Therefore, the opportunity for active fixed income portfolios lies in the ability to decide which risks deserve financing and on what terms.

So what opportunities are we seeing and how are we positioning as a result? First, from a high level, we really like fixed income at these yields and believe they are approaching levels that make forward return expectations competitive with historically higher returning parts of investors' portfolios. And do so without the same level of volatility as equities or concentration and liquidity risks of private credit. While we believe income can do a lot of the work for returns, we recognize that generic credit spreads are tight and dispersion is increasing.

So for us, the focus is on being very selective on issuer, structure and price, while being mindful of the macro and economic picture as we think about sectors and duration. For example, we remain constructive on the strongest hyperscalers, but selective about which bonds we own and the valuations at which we buy them.

We also see value in some select data-center financings, like Sopaipilla, which funds a BlackRock-Meta data center project in El Paso. The bonds carry Meta-guaranteed tenant lease obligations, are fully amortizing—meaning reduced future refinancing risk—and contain residual value guarantees should Meta walk away.

Away from AI, we continue to like regular-way high yield bonds. With the index yielding over 8% now, we believe US HY offers a combination of compelling income in a market whose quality has improved over time.

Bottom line – as competition for capital grows, we believe actively managed public fixed income portfolios are well positioned to capture value through a combination of greater lender pricing power, disciplined underwriting, and the liquidity to put capital where it is best rewarded.

That's it for today's Weekly Fix. Thanks for joining us!