Perspectives

2025 was a big year for global credit markets, seeing both resilience and divergence across countries and sectors while investors sifted through the news about geopolitical events, artificial intelligence (AI), and changing tariff policies. Recent months saw renewed activity in credit issuance, specifically a continuation of refinancings and repricings, along with a pickup in merger & acquisition (M&A) volumes globally.¹

Questions about credit quality have been raised, but overall, credit continues to perform well as an asset class with robust metrics and a resilient outlook. Credit markets will have to navigate competing forces in the year ahead, including tightening credit conditions, above-target inflation that is expected to decline closer to 2%, a strong GDP outlook despite the cooling jobs market, varied interest-rate paths across the world, and an evolving risk-return equation, all driven by the aforementioned points and other macroeconomic and technological shifts. Against this backdrop, investors should balance opportunities in private and public credit with heightened scrutiny of valuations and credit quality.

Credit Market Activity & Issuance

Global credit issuance picked up materially in 2025 with a strong outlook for 2026. A number of interesting trends developed over the course of the year:

• Credit spreads remained close to historical lows across the credit-rating spectrum and products.² As an example, the broadly syndicated loan markets in the U.S. and E.U. had an average spread for an institutional issuer at 301 bps and 364 bps respectively at the end of December 2025, and remained largely flat through the year, aside from the spike in spreads in early April as a reaction to the Liberation Day tariffs announcement from the U.S. administration.
• Loan and bond repricing/refinancing volumes represented 55–60% of issuance volume in 2025 as borrowers took advantage of historically tighter credit spreads and slightly lower base rates. That trend is expected to turn globally in 2026, with increased issuance from M&A and the amount of debt that can be repriced beginning to shrink. This does not include the $500+ billion of debt due to mature in 2028, which may drive some preemptive 2026 activity.³
• 2025 ended with the largest amount of dividend recapitalization debt volume (companies raising additional debt to pay themselves a dividend) in at least seven years.⁴
• M&A activity was the highest it has been in the past four years, and the second-highest M&A value year on record. Based on historical performance of M&A during past periods of financial turbulence, it is likely to remain steady over the long-term.⁵
• Private credit continues to increase its share of global leveraged buyout financing, totaling $81.4 billion in 2025,⁶ especially as broadly syndicated loans (BSL) and commercial banks face increased regulatory pressure.⁷

Interest Rates

There has been a lot of discussion in recent months surrounding expectations for interest rates globally, as well as specifically in the U.S., and what that will mean for growth prospects in 2026. In early December, U.S. interest rates were cut by 25 bps. Federal Reserve Chair Jerome Powell commented that rates are “now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves.”⁸ Some Federal Reserve Governors noted this could be the end of cutting rates.

As a team, we have been monitoring how the U.S. Federal Fund Rate (FFR) evolved throughout 2025, where the Federal Reserve Governors think the “neutral” rate is, and what that implies in terms of potential rate cuts in 2026. Based on current market prices, we expect a couple more cuts before landing in the middle of the neutral band by the end of 2026. However, we’ll be watching the health of the jobs market closely and what the newly appointed Reserve Board Chair thinks in the first half of the year.

Effective Fed Funds Rate (Historical) and implied Future Policy Path

Credit Quality

In recent months, questions have been raised regarding credit quality across all types of credit in the broader asset class as a number of complex situations have captivated market participants. However, the amount of stressed and distressed situations remains fairly muted by historical standards.

Compared with a larger sample set, such as the global leveraged finance market, leverage is at 4.8x today, the lowest it has been since 2010. Interest coverage ratios (EBITDA divided by the company’s interest expense) are also healthy at 3.0x, just above the average for the last 20 years.

Loan Leverage and Interest Cover Over Time

However, it can be easy to get complacent and miss a shift in the broader credit cycle. While consumer health has remained surprisingly resilient, particularly among the upper and middle classes, and corporate earnings remain robust, we are keeping an eye on the following:

• Credit quality dispersion, as in a bifurcated market between resilient corporate credits and more challenged sectors, there will be significant disparities between results.
• Inflation drivers, particularly in housing and tariff-related goods, and the paths of interest rates in major developed markets.
• Leading indicators for payrolls amid a fragile job market.
  • Changes in the U.S. leveraged lending guidelines.⁹
  • Flow of insurance and retail money.
• Use of capital:
  • Does M&A continue to pick up?
  • Do refinances continue?
  • What are the differences by region?
• Evolving risk-return profiles in AI-linked debt markets and related technology will need to be considered in every due-diligence process.
• Global debt pressures, including the ongoing evaluation of sovereign and corporate debt servicing capacity and stress levels.

Conclusion

Global credit markets are likely to maintain their active-yet-discerning start to 2026, with a number of multibillion dollar deals already closing in the first couple of weeks of the year, and look to remain strong in syndicated markets. We expect activity will be anchored by continued refinancing flows globally, with a growing volume of new issuance related to M&A and increased focus on credit quality. Interest-rate expectations, impacts from larger geopolitical events, spread movements, and sector-specific risks will all be a focus as central banks globally navigate their own balance between growth and inflation dynamics.