Key Takeaways
- • Man Group's credit team says the current credit cycle is defined by dispersion between issuers rather than a broad deterioration in credit quality, with tighter valuations leaving less room for error.
- • Private credit remains supported by strong income and relatively contained realised losses, but higher non-accruals, lower recovery rates and stress beneath headline figures call for close borrower-level scrutiny.
- • High-yield fundamentals are "reasonably sound", yet tight spreads offer investors little protection if conditions weaken, and floating-rate leveraged loan borrowers are more exposed to prolonged high rates.
- • The team remains constructive on emerging market corporate debt, which offers stronger balance sheets and wider spreads than developed market peers, with the spread premium reflecting sovereign and political risk rather than corporate fundamentals.
- • Higher government bond yields have improved investment-grade income, but AI-related borrowing by hyperscalers is creating new concentration risk.
Summary
According to a new report from Man Group's credit team, the current credit cycle is being shaped by dispersion between issuers rather than a broad deterioration in credit quality. The team said fundamentals remain resilient overall and income continues to support returns, but tighter valuations leave less margin for error and make issuer selection increasingly important. The report added that the outlook could be disrupted depending on the duration and severity of the war in the Middle East.
In private credit, the report noted that strong income generation and relatively contained realised losses continue to provide support, despite a series of high-profile defaults across software and software-as-a-service (SaaS) names. The team cautioned that higher non-accruals, lower recovery rates and signs of stress beneath headline figures mean investors need to focus on individual borrowers, particularly those exposed to technological disruption and economic change.
In high yield and leveraged loans, the credit team described fundamentals as "reasonably sound," supported by improved average credit quality and borrowers that refinanced at low fixed rates before yields rose. However, tight spreads leave investors with little protection if conditions weaken. Leveraged loan borrowers are more vulnerable to prolonged high interest rates because their floating-rate debt feeds through to financing costs more quickly. The team sees potential opportunities among companies facing refinancing gaps, liquidity pressures or complex capital structures that require tailored financing solutions.
The team remains constructive on emerging market corporate debt, arguing that many issuers have materially stronger balance sheets than developed market counterparts while offering wider spreads. According to the report, the spread premium versus the US reflects sovereign, political and macroeconomic risks more than underlying corporate fundamentals. Elevated dispersion and full valuations mean investors should remain selective. Source data from Man Group and Bank of America Global Research is as of 30 September 2026.
In investment-grade credit, higher government bond yields have improved available income. The report showed that periods when 10-year US Treasury yields exceeded 5.25% were followed by positive 12-month returns for global investment-grade bonds, using month-end data from 1 January 1999 to 15 September 2026. The credit team warned, however, that growing AI-related borrowing by hyperscalers is creating new concentration risk, with the long-term outlook dependent on whether heavy AI infrastructure investment ultimately generates the expected cashflows.
In private credit, the report noted that strong income generation and relatively contained realised losses continue to provide support, despite a series of high-profile defaults across software and software-as-a-service (SaaS) names. The team cautioned that higher non-accruals, lower recovery rates and signs of stress beneath headline figures mean investors need to focus on individual borrowers, particularly those exposed to technological disruption and economic change.
In high yield and leveraged loans, the credit team described fundamentals as "reasonably sound," supported by improved average credit quality and borrowers that refinanced at low fixed rates before yields rose. However, tight spreads leave investors with little protection if conditions weaken. Leveraged loan borrowers are more vulnerable to prolonged high interest rates because their floating-rate debt feeds through to financing costs more quickly. The team sees potential opportunities among companies facing refinancing gaps, liquidity pressures or complex capital structures that require tailored financing solutions.
The team remains constructive on emerging market corporate debt, arguing that many issuers have materially stronger balance sheets than developed market counterparts while offering wider spreads. According to the report, the spread premium versus the US reflects sovereign, political and macroeconomic risks more than underlying corporate fundamentals. Elevated dispersion and full valuations mean investors should remain selective. Source data from Man Group and Bank of America Global Research is as of 30 September 2026.
In investment-grade credit, higher government bond yields have improved available income. The report showed that periods when 10-year US Treasury yields exceeded 5.25% were followed by positive 12-month returns for global investment-grade bonds, using month-end data from 1 January 1999 to 15 September 2026. The credit team warned, however, that growing AI-related borrowing by hyperscalers is creating new concentration risk, with the long-term outlook dependent on whether heavy AI infrastructure investment ultimately generates the expected cashflows.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.