256. AI and Bond Markets: How Artificial Intelligence Is Reshaping Fixed Income Investing
Web Title: How AI Is Transforming Fixed Income Investing
Full Episode Description:
AI and bond markets are becoming increasingly interconnected as artificial intelligence reshapes capital demand, market structure, and investing approaches across fixed income. As inflation regimes shift and traditional diversification dynamics evolve, investors are rethinking the role bonds play in portfolios.
In this episode of The Bid, host Oscar Pulido speaks with Jeff Rosenberg, Senior Fixed Income Portfolio Manager at BlackRock Systematic, about how AI and bond markets are evolving together. They explore how the rise of artificial intelligence is driving a new wave of capital investment, influencing real interest rates, and increasing debt issuance as companies finance AI infrastructure through bond markets.
The conversation also examines how AI and bond markets intersect at the investment level. Rosenberg explains how advances in machine learning and generative AI are enhancing systematic investing, improving tools like sentiment analysis, and enabling deeper insights across thousands of issuers, central banks, and global markets.
Finally, they discuss how modernization in fixed income — including electronic trading and the growth of bond ETFs — is transforming liquidity and price discovery. Together, these shifts are creating new opportunities and challenges for investors navigating a more complex and data-driven bond market.
Key insights in this episode:
How bond markets have changed over time
The shifting role of bonds in portfolios
Inflation, rates, and diversification challenges
How AI is impacting bond markets – Both Micro and Macro
Debt issuance and AI financing trends
Using AI in fixed income investing
Systematic investing and data-driven strategies
The future of bond markets and technology
Keywords: AI and bond markets, fixed income investing, AI investing, bond market trends, systematic investing, capital markets, interest rates, bond ETFs
Sources: Stock-Bond Diversification Offers Less Protection From Market Selloffs, IMF article, February 2026; On Secular Stagnation in the Industrialized World, Paper released by Harvard and Bank of England, 2019; Financing the AI boom: from cash flows to debt, BIS Bulletin paper, January 2026; ‘AI is eating software’ and it is redefining supply chain decision-making as a result, Supply Chain Management Review article, 2026; How AI is transforming Investing, BlackRock 2026; The economic potential of generative AI: The next productivity frontier, McKinsey 2026; 40 years of innovation in pursuit of alpha, BlackRock, 2025; Key Trends in Credit Markets for 2025 Barclays 2025
Written Disclosures In Episode Description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
<<TRANSCRIPT>>
Oscar Pulido: Today's bond market looks very different from what it did just a few decades ago. Not only has the structure of the market evolved, but so has the role bonds play in portfolios. Trading is increasingly electronic. Data is more abundant. The number of bonds available to investors has grown dramatically At the same time, the dynamics shaping returns have become more complex with shifting inflation and policy regimes, the rise of the AI investment cycle and an ever-evolving mix of risks and opportunities.
Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
On this episode, we're taking a closer look at how bond markets have changed and what that means for investors. From the evolving role, bonds play in portfolios to the expanding use of data and AI. In investing, we'll examine today's fixed income landscape and the growing role of systematic data-driven approaches within it.
Joining me is Jeff Rosenberg, senior fixed income portfolio manager for BlackRock. Systematic. Jeff has watched these shifts unfold over the course of his career and is seeing how investors are adapting to a world. Bonds may behave differently than they have in the past.
Jeff, thank you so much for joining us on The Bid.
Jeff Rosenberg: Oscar, great to be back on The Bid.
Oscar Pulido: Well, Jeff, you're a bond investor and you've had a front row seat to many of the transformative shifts that have been shaping the bond market recently. Maybe we can just take a step back and when you think back to the start of your career or even earlier, what was different about the bond market then as compared to today.
Jeff Rosenberg: Yeah. I like this question. My perspective goes back over 30 years and you think about that history in terms of specific periods and one period that we came out of was the post-GFC to the COVID period, we saw very low levels of inflation. We saw very strong levels of bond market diversification. So, bonds really featured in, portfolios as almost the perfect portfolio hedge. It was insurance where the premium paid you. You come out of the post COVID environment and we've seen some dramatic shifts- Inflation is now too much inflation rather than too little inflation.
And we're seeing positive stock bond correlation. We've seen it in the 2022 environment. We've seen it recently, coming out of the Iran war shock that bonds aren't necessarily the hedge that they used to be. And it's forcing a whole rethink of the role of bonds in investors portfolios.
Oscar Pulido: And that's consistent with what Jean Boivin talked about in the 2026 BII global outlook where he talks about a diversification mirage and that it's, it seems harder to diversify in today's environment. And as you're mentioning bonds haven't played the traditional hedge role in a portfolio that maybe they did for much of the last 10, 15 years. So, given that transformation, Jeff, and what's happened in bond markets, how are investors approaching their investments in bonds and the markets overall?
Jeff Rosenberg: It's this movement, away from the kind of traditional role of thinking about bonds in a portfolio from a total return investing perspective and more towards thinking about bonds more from the specific outcomes that they can provide and that range of outcomes can be income, which is their traditional role, or other specific outcomes. And it's really the shift in the conversation towards systematic investing where we bring in that approach where it's really about engineering for specific types of outcomes.
Oscar Pulido: Jeff, I think there's a saying Bonds for ballast is often how people have thought about the role of bonds in their portfolio. I think what you're saying is that bonds may still play that role, but they can also play other roles as well.
Jeff Rosenberg: Yeah, and it's not only just that the bonds are playing other roles and the biggest one of that is, is going to be thinking about them more from income than from ballast. But also what we do in systematic investing in fixed income to use different techniques in the bond markets to deliver the more traditional outcomes to bring back some of the ballast that the asset class is lost as a function of the, primarily the shift in the inflationary environment from too little to too much inflation. It's undermined the asset class characteristic, by using techniques like long-short investing, you can kind of bring some of that ballast technique back, or ballast outcome, I should say back to fixed income.
Oscar Pulido: So far it sounds like what you're describing is a transformation that has been driven by a change in the economic environment. You mentioned the GFC, the global financial crisis through COVID was a period of, low inflation, low real interest rates, and now we've been in a different regime and that's been part of the transformation.
But let's talk about technology and AI, which presumably has had a transformative impact on the bond market. What are you seeing from that lens?
Jeff Rosenberg: Let me talk a little bit about the impact that it's had on the bond market and then the how, which is how it's changing how we invest in bonds using AI and technology.
First on the what, there's two aspects. There's a macro aspect, and that is part of that kind of post GFC to COVID environment was this period of very little or low investment demand. Relative to a lot of supply. And so, the impact of that intersection between low demand and high supply was very low and even negative real interest rates. So you come out of the COVID period and you've got a lot of factors, but AI we can clearly see is this massive capital investment regime, and it's happening globally in terms of the scale of capital investment required. So that's shifting upward, the demand for capital, and it's happening in an environment of other factors as well that we used to talk about- globalization changes, reshoring, securing energy sources, partly driven by AI. All of this is shifting up the demand for capital and that from the bond market's perspective is a huge impact with regards to what is the outlook for real interest rates. Real interest rates are low, but they're rising and they're coming off this period of zero and negative levels to increasing levels. So, that's the kind of the big impact because bond market investors returns start with the real interest rate, especially when we think about the returns after inflation. So that's the macro piece.
The micro piece is the AI story started with financing those capital requirements out of free cash flow. And the big shift over the last year has been, this is now a debt financed exercise. And so the movement of AI into the debt markets to finance that expansion is bringing both opportunities and risks. The opportunities are, you've got more debt issuance across both the hyperscalers, the environment around that, the infrastructure build out. The risk side is, you own some of that risk more in your bond portfolio. This was a bigger concern a few months ago. The concern has been overwhelmed by a another risk, which is the disruption risk. And the disruption risk best encapsulated by this tagline, AI eats software is a technological shock to the established business models of software as a service which has been big issuers in the debt markets. And so that's creating sort of a repricing as we try anticipate what is the impact of this transformational technology on the valuation and terminal value of many of these business models that are being disrupted. So you're seeing both sides of that in terms of the what side of the bond market.
Oscar Pulido: So, what you're saying, Jeff, is that the first impact that AI is having on the bond markets is you have companies that are at the center of the AI build out that are now issuing more debt. This journey of capital expenditures that they were on initially was funded from just cash on the balance sheet, but now they're looking to the debt markets to finance that. And so that's one of the impacts that it's having on the bond markets. It's more supply of fixed income. But maybe talk a little bit about the how does this impact how bond investors like yourself approach the market?
Jeff Rosenberg:
But there's another story as well. That's part of this transformative aspects of the modern bond market, and that is the impact of modernization- particularly within the credit markets. So, the credit markets as a sub component of the broad bond markets. And this maybe, Oscar is a whole other topic for another Bid, which is really the role that bond market ETFs have played in transforming how price discovery happens within the bond market. It's a very interesting story, but the impact in terms of the combination of tools the upgrading of tools that AI is delivering to investors, particularly systematic investors and melding that with the changes that we've seen in how transactions and price discovery happens within the credit markets is creating what I call a Reese's Peanut Butter Cup moment for systematic investing.
What does that mean? It means two great tastes that go great together. Chocolate and peanut butter. The chocolate is systematic investing is about the real time processing, using tools like AI and big data, updating optimal portfolios in small increments, on nearly a real time basis. That melds really nicely with the peanut butter of the modernization of credit market intermediation, where we trade less on individual large positions on big benchmark bonds and more on a portfolio wide basis.
That intersection is, unlocking more alpha opportunities for investors. Approaching bond market and credit market management, portfolio management from a systematic perspective. So that's a way in which, technological transformation we're seeing across a number of features, both the AI component in how we invest systematically, but also in terms of the technological advancements and the changes that the ETF revolution has brought about in terms of price discovery and how we do intermediation in the credit markets.
Oscar Pulido: It sounds like technology is making investing in the bond market perhaps more convenient or for you as an investor, giving you access to more opportunities and ways to generate return.
And Jeff, just to go back to something you said which is how AI is now and generative AI is giving you more insight into the market. I suppose as a bond investor, you care a lot about what central banks are saying and the press releases and the statements from the heads of those central banks. So it sounds like not so long ago you could read the transcripts from central banks and do maybe a word count how many times they said a positive word versus a negative word, and that seemed pretty insightful at the time. But you're saying it's evolved even from there, where you now have a better way to gauge sentiment. Is that a good example of how AI is impacting your space?
Jeff Rosenberg: It's a good example, it allows us to systematize what we've always done from a fundamental perspective. Now the example of the Fed is a bad one because that is the most widely followed Central Bank in the world. There's a lot of depth. It's in the price. You're not going to get a lot of alpha and edge on that. where you see it is doing that not just for the Fed, but doing it for all central banks and doing it across large markets and small markets where you can get some more alpha in the macro space.
And then when it comes to this kind of sentiment analysis, it's really about doing it in five, 10,000 individual companies where you're taking in not only information from the company. The earnings releases, the press conferences, but also from analysts, analyst reports, media coverage. It's, it's really about the transformation of systematic investing from what has historically been a breadth game where you're doing a little bit of an edge across a lot of individual companies to adding, and this is really the change in what AI is bringing to systematic investing is adding some of the depth that has historically been the purview of deep value fundamental investors, we can now systematize some of that depth approach with these new AI tools. And that's really the kind of transformative thing that's happening on the horizon.
Oscar Pulido: So you've definitely highlighted a lot of transformations in the bond market, and I'm thinking there are investors, who still remember buying a bond over the counter and holding it to maturity and you've definitely painted a picture of a much more modern bond market and a much more modern approach that you're taking.
If you look forward, you've already painted a picture of a very futuristic scenario that we're living in today, but where's the bond market evolving from here? What do you see going forward?
Jeff Rosenberg: We've touched on it a little bit and it's really, the combination of those two points. the tools allow greater depth in the analysis in a systematic way. So, systematizing the depth of fundamental analysis that historically has been hard for systematic investors to penetrate that. That's kind of one point. And then the second point back to this modernization of bond markets, it's really about, encoding that capability into our real-time portfolio optimization. So, we've always had kind of transaction cost aware optimizations, but now you can make those optimizations liquidity aware. So, you bring into your investment process the two sides of the equation, the real time analysis of the large data across your portfolio, updating in small increments every single day, in this kind of near real time optimization, but then incorporating at the same time, what is the liquidity environment look like? But you're able to do that systematically because you have portfolio trading, you have greater electronification. of Credit trading and moving away from your earlier kind of description of getting on the phone and trading that big benchmark issue, evaporating, liquidity very quickly, having to work orders. That's the old style. New style is finding ways to expand the amount of alpha extraction that we're able to generate, by minimizing the transactions costs through these new ways of transacting.
Oscar Pulido: I think when we think about the markets, we think about stocks and there's literally thousands of stocks, right? But I think in the bond market, the number of unique issuers and bonds, is actually an order of magnitude bigger. So, it sounds like you need to use technology and some of the techniques that you're talking about too really find the opportunity. Is that a good way to think about it?
Jeff Rosenberg: Yeah, it's a great way of thinking about it. And it's also a great way in which the combination of the transformative technologies and the change in bond market intermediation unlock more opportunity for alpha extraction but you need to be able to minimize your transactions, costs. So all that alpha isn't basically eaten up by your transactions costs.
Oscar Pulido: Jeff, you've taken us on quite a tour here. We talked about bond ETFs, we talked about AI, the companies that are issuing debt, but also how you're using AI and technology to invest in the bond market. This sounds like a space that is evolving quick, thank you for shedding some light on this topic and thank you for doing it here on The Bid.
Jeff Rosenberg: Great to be here.
Oscar Pulido: Thanks for listening to this episode of The Bid. Next week we'll turn from bonds to stocks as we speak to Ibrahim Kanan about looking outside of the magnificent seven stocks that have been driving the biggest returns in indexes.
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures
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