Credit Currents

U.S. high yield spreads remain near historical tights. Yet tighter spreads come against a backdrop of improved market quality, resilient borrower fundamentals and contained credit stress.

BDC markets have recovered from earlier volatility, though elevated risk premia point to continued caution. Borrower fundamentals remain resilient overall, but uneven performance across issuers highlights the value of selectivity and diversification.

AI-related financing is an increasingly important driver of credit market supply and relative value, as hyperscaler issuance accelerates and data center financing expands across IG and HY.

Commercial real estate is moving beyond the broad repricing of recent years toward a more stable, but uneven, recovery, with elevated financing costs and divergent fundamentals continuing to drive sector dispersion.

Renewed inflation pressure is reinforcing a more hawkish central bank backdrop and, in turn, a continuation of the higher-for-longer rate environment. This continues to support income in floating-rate credit.

As markets move toward a more normal credit cycle, the private credit story is still broadly constructive – but the market is becoming less uniform.

As investment grows, AI financing has increasingly converged with infrastructure and project finance markets, expanding the opportunity set and reshaping how credit investors assess and underwrite risk.

As borrower performance become more dispersed, underwriting discipline, portfolio construction, and workout expertise are likely to play a larger role in shaping recoveries, realized losses, and ultimately investor return.

As defaults remain elevated across liquid credit markets, investor outcomes are increasingly shaped by recoveries, security selection, and how stress is being worked through the credit cycle.

Amid resilient M&A activity, shifting deal dynamics and evolving private equity behaviour are reshaping financing demand across credit markets.