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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Good morning. Another bad day in US markets yesterday, but Donald Trump claims to be unfazed. Yesterday at a cabinet meeting he said that the war had not driven oil prices up as much, or stocks down as much, as he thought it would. But one thing has gone up more than anyone expected; interest rates. The 10-year Treasury yield rose another 9 basis points, to 4.42 per cent, yesterday, almost half a percentage point higher than before the war. One can coherently argue that rates markets are overreacting to the energy supply shock, but such an argument will provide only modest comfort to the White House, the Treasury department — or financial markets. Please, tell us when the pain will stop: [email protected]
Bonds are the new stocks, for better or worse
The hottest term in corporate bond circles lately is equitification (not to be confused with enshittification, which plucky Norwegians are fighting on behalf of us all.) It refers to the ways the once-stodgy corporate bond markets are starting to resemble stock markets in good ways and, possibly, bad ones too.
The good news is that corporate debt is getting much easier to trade. There’s more than 16 bonds for every non-financial company in the S&P 500 index, and you don’t even need think about the wilderness of bank bonds. There are just loads of the things. So trading individual bonds is fiddly, and trading lots of individual bonds — in order to track a bond index or benchmark, for example — used to be an enormous pain. But technology has fixed a lot of that, making it relatively simple for funds to get in and out of corporate debt in bulk. (Robin Wigglesworth over at FT Alphaville has written about this recently.) And enhanced liquidity for bonds that are already out there in the wild begets better market conditions when new bonds are born. That’s all to the good.
But corporate debt markets are mimicking some of the stock market’s less flattering elements, too.
For one thing, here we are wringing our hands about how stock markets in general, and US stock markets in particular, are wildly overweight tech, and worrying about how private credit might be too tech-flavoured, too. Meanwhile, public credit markets are doing this (chart from the OECD):
And this:
The OECD notes:
In 2025, [hyperscalers] issued a total of $122bn (of which $88bn over 54 days in the last few months of the year), equivalent to 45 per cent of total issuance by all technology firms globally, the largest amount on record in real terms and over 3 times more than the historical annual average since 2000. Some firms issued multiples of their historical averages in 2025.
Our colleagues wrote a very nice piece on all of this in January.
In addition, investment-grade credit spreads (the now rather tiny slice of additional return an investor gets for holding safe companies’ debt as opposed to government debt) now move very much in sync with stock markets. The OECD again:
Index-based hedge ratios — measuring the sensitivity (conditional co-movement) of corporate credit spreads to changes in equity prices — appear to have become increasingly negative for broad-based indices over time. That means that when index equity prices increase (or decrease), index corporate credit spreads compress (or widen) more.
Portfolio trading may be playing a role here, as broad swaths of bonds are easier to trade when moves in the equity markets lead to portfolio rebalancing.
So: an increasingly tech-heavy market, bobbing up and down in line with general risk sentiment. Sounds like . . . the stock market? We leave you to decide whether this is enshittification after all.
(Martin)
Peak private credit panic
Private credit continues to suffer from a reputation gone sour as headlines zero in on software exposure, credit quality and liquidity issues. The Iran war has drawn some of the attention away from private credit, but shares of publicly traded business development corporations, which are a messy proxy for sentiment about the industry as a whole, continue to suffer:
But just as the excitement about private credit overshot a few years ago (“equity-like returns for bond-like risks!”) the demonisation of it has overshot the mark. In particular, the comparison to the 2008 financial crisis is getting out of hand, says Ajay Rajadhyaksha at Barclays (as a former Bear Stearns mortgage analyst, he knows something about that crisis). The comparison is “just silly”. He points out that private credit funds, which have debt-to-equity ratios of about 2:1 are worlds away from the hyper-leveraged derivatives of two decades ago.
Just as important, the private credit industry is small in the grand scheme of the financial system. It’s hard to pinpoint exactly how big it is; Shamshad Ali at Goldman Sachs puts it at about $2.6tn in size, which is at the high end. The private credit industry has grown quickly, but is still only accounts 9 per cent in corporate borrowing. BDCs are an even smaller slice at just around $500bn in total portfolio value for both publicly traded and private BDCs. “The losses are simply not big enough — and will probably not occur quickly enough — to knock a $31tn economy off its stride,” Rajadhyaksha says.
Despite all the anxiety of credit quality with the recent software scares around artificial intelligence, private credit default levels are still in line with historical levels at 2.5 per cent, according to JPMorgan Private Bank. The share of BDC loans trading below $80, the unofficial threshold for distress, is actually lower than its eleven-year average, as the navy line in the Goldman Sachs chart below shows. Ali at Goldman Sachs also points to the narrowing range in distressed loan exposure (the light blue line) across BDC managers as a good sign of them cleaning up their problems, as opposed to the stress spreading:
Private credit promised extra returns — perhaps 200 basis points worth — for no extra risk in return for only somewhat lower liquidity. That was always going to be a very hard package to deliver on; at a multitrillion-dollar scale, it’s probably impossible. So now all three aspects of the promise (excess return, risk, liquidity) are open to question, as they should be. But there is a difference between disappointment and disaster.
(Kim)
One good read
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