Large government deficits and rate-insensitive AI spending keep broad growth robust, requiring higher interest rates to maintain macroeconomic balance. However, those elevated levels strain weaker, indebted businesses, echoing 2005 dynamics where the wider economy held up while vulnerable credit segments deteriorated.
Headline equity gains and tight average spreads mask deepening stress under the surface. Spreads on lower-rated CCC credit have widened, BDCs trade at widening discounts, and more than half of the 3,000 largest U.S. stocks experienced drawdowns of at least 20% once yields began climbing.