The rise of electronic and portfolio trading has made public credit markets as liquid as equity markets. This 'equitification' has compressed spreads by eliminating the historical illiquidity premium, forcing investors into private markets like private credit to find comparable yield.
Barclays' research shows that the best investment performance comes from combining fundamental analysts with systematic signals. The key is to filter out trades where the two perspectives diverge, as this method is exceptionally effective at eliminating potential losing investments and generating alpha.
The greatest systemic threat from the booming private credit market isn't excessive leverage but its heavy concentration in technology companies. A significant drop in tech enterprise value multiples could trigger a widespread event, as tech constitutes roughly half of private credit portfolios.
The private Investment Grade (IG) market is widely misunderstood. It primarily consists of asset-backed or project finance deals for specific CapEx projects, often structured in separate SPVs. This makes it more akin to secured financing than a direct private alternative to public corporate bonds.
Barclays forecasts a 40% jump in net investment-grade debt supply in 2026, driven by tech sector CapEx and renewed M&A activity. This massive influx of new bonds will test market demand and could lead to wider credit spreads, even if economic fundamentals remain stable.
Official non-accrual rates understate private credit distress. A truer default rate emerges when including covenant defaults and 'bad' Payment-in-Kind interest (PIK) from forced renegotiations. These hidden metrics suggest distress levels are comparable to, if not higher than, public markets.
Traditional credit rotation strategies based on beta and starting spreads have become ineffective. Analysis now shows a sector's net supply—the volume of new debt issued versus what's maturing—is the most critical factor determining its relative performance, making technicals more important than fundamentals.