Global Credit Market Trends

The New Reality of Debt: A Tough Road Ahead for Global Markets 🌐 The era of cheap money is over: The ultra-low interest rates and extensive central bank support that defined the pre-2022 era have not returned—even in 2024. Investors and policymakers alike are adjusting to a new normal where easy liquidity is no longer guaranteed. 🌐 Bond yields are rising—even as policy rates fall: Despite central banks beginning to cut policy rates in some regions, bond yields in key sovereign markets have continued to rise. This disconnect points to investor concerns about inflation persistence, fiscal stability, and future monetary policy direction. 🌐 Debt levels continue to climb—across both sovereign and corporate sectors: Governments and corporations alike have continued borrowing, pushing global indebtedness to new highs. This rising debt load is becoming harder to service in a higher yield environment. 🌐 Higher borrowing costs and higher debt burdens are creating a vicious cycle: This combination is squeezing fiscal space and corporate balance sheets, leaving less room for new borrowing just when capital investment is urgently needed for growth and transformation. 🌐 Legacy debt is haunting future priorities: Much of the borrowing post-2008 financial crisis and during the COVID-19 pandemic was focused on short-term recovery measures. As a result, long-term investment in infrastructure, sustainability, and productivity-enhancing initiatives has been underfunded. 🌐 Access to funding is becoming more unequal: Certain corporate issuers and emerging markets are struggling to tap into debt markets, facing either prohibitively high costs or limited investor appetite. This fragmentation is making capital mobilisation increasingly difficult and unequal. 🌐 Geopolitical and macroeconomic uncertainty is amplifying the challenge: From war and trade tensions to shifting monetary regimes, the global environment is highly unpredictable. This uncertainty is adding another layer of complexity to funding and investment decisions. 🌐 Debt markets now face a dual mandate - stability and sustainability: In this new landscape, debt markets must evolve to not only support immediate financing needs but also enable long-term, sustainable growth. Balancing these goals will be one of the most important—and difficult—tasks of the decade ahead #debtcrisis #privatecredit #sovereigndebt #recession #inflation #monetarypolicy #fiscalpolicy #oecd

Geopolitical tension, AI disruption, and renewed inflation concerns are all feeding into how selective investors are in credit markets, and how deals are getting done.   From spending time with clients, investors and sponsors, a few consistent points are coming across:   🔹 Demand is concentrating in higher-quality credit. This is reinforcing a “have” and “have-not” divide, with stronger, well-rated borrowers seeing deeper demand, while others are finding execution more challenging than even a few months ago.   🔹 Bonds are taking a larger role in execution. With loan markets more exposed to software and more dependent on CLO demand, bonds are playing a larger role on the capital structure, particularly for larger, more complex transactions. Even sponsors are more open to bonds where historically they preferred loans.   🔹 Private credit market is getting harder to read. While it remains an important source of capital, pricing is wider, ticket sizes are coming down, and underwriting appetite is less consistent than it was. The illiquidity of this market is also becoming a concern in this context.   🔹 Software is being re-underwritten. Investors are still reassessing how resilient software business models are in the context of AI disruption, and the market isn’t yet clearly distinguishing between those that will hold up and those that may not.   Overall, execution is still getting done but it’s with a higher bar, tighter pricing discipline, and greater scrutiny on how credit is positioned and structured. Execution quality in this environment is paramount. 

The OECD - OCDE Global Debt Report 2026 presents a comprehensive assessment of sovereign and corporate #debt dynamics in an increasingly complex macro-financial environment. The report underscores that global debt markets have demonstrated notable resilience despite geopolitical tensions, inflationary pressures, and tightening financial conditions. In 2025, governments and corporations borrowed a record USD 27 trillion, with projections rising to USD 29 trillion in 2026, reflecting structurally elevated #financing needs. A central theme is the growing pressure on debt #sustainability. Persistent fiscal deficits, higher interest rates, and significant investment requirements—particularly linked to #energy transition and #AI #infrastructure—are driving continued borrowing. Sovereign debt in OECD countries reached approximately USD 61 trillion in 2025, with debt-to-GDP ratios expected to rise further to around 85% in 2026, signaling mounting fiscal strain. The report highlights a structural shift in debt markets. Central #banks are reducing their #bond holdings, leading to a transition toward a more price-sensitive and diverse investor base, including leveraged and short-term investors. While this diversification enhances #liquidity, it also increases vulnerability to market shocks and volatility. Another critical development is the shortening of debt maturities. Governments and corporations are increasingly issuing shorter-term debt to mitigate high long-term borrowing costs. However, this #strategy significantly raises refinancing risks, with global refinancing needs reaching record levels (around USD 13.5 trillion in 2025). In corporate markets, borrowing reached historic highs, supported by relatively low credit spreads despite macroeconomic uncertainty. The report emphasizes the growing role of debt in financing AI-driven #capital expenditure, with large technology firms becoming dominant issuers. This evolution may reshape bond markets, increasing sector concentration and aligning #risk characteristics more closely with equity markets. Despite surface-level stability—characterized by moderate volatility and tight spreads—the report cautions that underlying vulnerabilities are accumulating. Rising interest costs, evolving investor structures, and elevated refinancing needs could amplify systemic risk if macroeconomic conditions deteriorate. The OECD concludes that sustaining debt market #resilience will require sound fiscal management, strong institutional frameworks, and policies that enhance productivity and long-term growth. Without these, the combination of high debt levels and structural shifts in #market dynamics may constrain future borrowing capacity and increase the likelihood of financial instability. #finance #fintech #banking #investments #strategy #governance

The $3,500,000,000,000 ($3.5 trillion) private credit market is entering a pivotal phase over the next 12–18 months. Here are 5 trends LPs should be watching: 1. Maturity walls and refinancing pressure ∙ ~$580B in leveraged loans and ~$625B in high-yield bonds mature between 2027 and 2029; a roughly $1.2 trillion debt wall that will need to find a home in the next few years ∙ Many borrowers will need capital in a higher-rate environment Investor takeaway: ∙ Expect more deals, but also more credit risk. ∙ Use this window to review how exposed your portfolio is to borrowers refinancing out of necessity rather than strength. 2. Bank retreat and the rise of non-bank lenders ∙ Regional and mid-market banks are pulling back ∙ Banks are partnering with investment managers; banks focusing on origination, while investment managers provide the balance sheet Investor takeaway: ∙ This shift expands the private credit universe. ∙ Investors should revisit their mandate. ∙ There may be room to allocate to newer strategies that did not exist even five years ago. 3. Yield compression and spread discipline ∙ Competition is driving yields down from peak levels ∙ Borrowers have pushed for increasingly aggressive terms amid the competitive backdrop Investor takeaway: ∙ Do not chase the highest yield. ∙ Focus on risk-adjusted returns, and assess whether the premium justifies the liquidity and credit exposure you are taking on. 4. Liquidity and fund alignment are under scrutiny ∙ Semi-liquid & evergreen vehicles are becoming more common ∙ Redemption risk is rising if portfolios do not match their terms Investor takeaway: ∙ Scrutinize how your private credit fund handles liquidity. ∙ Ensure redemption policies, lockups, and deployment timelines fit your broader portfolio needs. 5. Sector selection and macro resilience ∙ Some sectors are feeling pressure from inflation, tariffs, and cost shocks ∙ Healthcare and recurring-revenue services are holding strong; tech deal value in North America was up 56% year-over-year through mid-2025 ∙ Software is a growing exception: AI is eroding the seat-based pricing and ARR predictability that made it a reliable credit underwrite; lenders need to distinguish AI-native businesses from legacy SaaS platforms now competing against their own customers’ tools Investor takeaway: ∙ Do not treat “software” as a monolithic safe haven. ∙ Focus on credit strategies targeting essential, durable industries that can weather macro shifts without sacrificing cash flow. P.S. What trend are you paying closest attention to as we head deeper into 2026?

Good morning. One theme I have followed closely this year is how funding decisions evolve when politics, pricing and liquidity all start pulling in different directions. Borrowers usually remain loyal to a single currency unless the economics give them a clear reason to move. When that pattern changes, it is worth looking at what is happening in the deeper structure of global credit. The chart below is a good illustration. It shows that several large Asian firms now secure a lower all-in cost by issuing in euros and swapping the proceeds back into their home currency than by issuing in dollars. DBJ, NTT, SoftBank, DBS and KOLAHO are aligned on this point. Euro spreads have tightened enough and the swap back into local currency is inexpensive enough that the final cost undercuts the dollar alternative. Once you see that, the larger picture starts to come into focus. Four elements stand out. • European investors have become a more influential part of Asian primary markets. They are seeking diversified credit exposure and have been willing to take tighter pricing on well-known Asian names. • Cross-currency basis conditions now favour euro funding. Swapping euro proceeds back into local currency is efficient, which removes one of the main advantages of the dollar market. • Asian treasurers are adjusting to a more complicated external environment. Tariffs, US policy uncertainty and a softer dollar are all encouraging borrowers to broaden their funding channels. • Pricing is driving the shift. When the post-swap cost in euros is lower, the choice becomes straightforward and orderbooks in Europe are deep enough to take the supply. For me, the value of this chart lies in how clearly it captures the quiet adjustments reshaping global funding flows. Capital gravitates toward the combination of cost, liquidity and predictability that best fits the moment. At the margin, that combination is increasingly pointing issuers toward Europe. I will be watching whether this is a temporary window created by favourable swap levels or the beginning of a more durable division of funding between New York and Europe. The early signs suggest the transition is already underway.

Private Credit’s Center of Gravity: Too Much North America? By 2030, North America is expected to remain the dominant hub of private credit AUM, accounting for the clear majority of global capital — even as Europe and Asia scale their markets. This leadership reflects deep markets, strong sponsor ecosystems, and a mature legal infrastructure. But it also raises an uncomfortable question for allocators: how much concentration is too much? From a CIO lens, several dynamics are worth watching: • Structural advantage: North American deal flow and documentation quality still set the global standard. • Cyclical exposure: The same dominance means portfolios are heavily tied to one macro cycle — the U.S. credit and policy environment. • Diversification challenge: Even global credit strategies often end up with U.S.-centric exposure once currency hedges and liquidity filters are applied. For investors, this concentration risk is subtle but significant. Private credit’s attraction lies in diversification — from both public markets and geography — yet much of the industry’s growth still flows back to the same borrowers, covenants, and rate regimes. The next evolution may come not from chasing yield abroad, but from building truly regional lending ecosystems — in Europe’s lower mid-market, Asia’s SME space, and MENA’s infrastructure credit. These are still frontier segments for private lenders, but over time, they may prove the only real diversification that counts. North America’s lead is secure — but leadership and dependence are two sides of the same coin. #PrivateCredit #GlobalMarkets #Alternatives #InvestmentStrategy #CIOOffice

Private credit isn’t a side allocation anymore — it’s becoming a core pillar of institutional portfolios. Having led private credit strategies for insurers and asset owners across Asia, I’ve seen the asset class evolve from opportunistic yield-seeking to a mainstream allocation. Going into the last quarter of 2025, three trends stand out to me: 1. From Opportunistic to Strategic What started as dislocation-driven yield plays is now embedded in long-term capital allocation. CIOs are treating private credit as part of their “steady-state” portfolio construction. 2. Rise of the Middle East & Asia Sovereign funds and insurers in these regions are shifting from being LPs to becoming true co-investors and strategic partners. Their scale and patient capital are reshaping deal structures. 3. Secondaries & Liquidity Solutions As portfolios season, demand for secondaries and NAV-based financing is accelerating. To me, this signals not just a search for liquidity, but a maturing asset class where LPs are taking the driver’s seat. The key challenge for allocators: balancing illiquidity premium with portfolio flexibility. That trade-off will be a defining CIO decision in the years ahead.

Global corporate bond spreads have fallen to their tightest levels since before the Global Financial Crisis. Investment-grade corporate spreads are now near 2007 lows, a level not seen in nearly two decades. Despite rising macro and geopolitical risks, markets continue to price credit as if risk is minimal. What does this tell us? • Demand for corporate credit remains strong — helped by subdued issuance, sticky inflation, and global rate divergence. • Technicals are dominating fundamentals, with cash still flowing into credit funds. • Investors appear to be chasing yield wherever they can find it — even if it means compressing spreads to historic extremes. But the question is: how sustainable is this? In 2007, these were the exact levels just before credit conditions unraveled. Today’s backdrop is different — no mortgage bubble, more central bank visibility — but complacency often looks the same until it doesn’t. Source: Bloomberg

Global debt markets are at a turning point. Borrowing costs remain elevated and have not declined in line with central bank policy rates. Today, we launched the 2025 edition of the Global Debt Report. Key insights include: ➡️ Borrowing by governments and companies continued to rise in 2024 and is expected to increase in 2025. ➡️ USD 25 trillion was borrowed from markets globally – nearly triple the amount in 2007, before the financial crisis. Governments and corporations are facing an environment of slowing growth, geopolitical uncertainty, and competing demands for public and private funding. With every cent raised via debt markets costing more, difficult choices lie ahead. Prioritising borrowing that enhances the productive capacity of the economy and supports their long-term growth will be critical in the years to come. 🔗 ️https://oe.cd/5XD | #GlobalDebt

“Banking is essential, but banks are not.” — Bill Gates That’s the wake-up call for any lender still running on 20th-century credit models. I recently wrapped up an intensive training on The Future of Global Digital Lending for 25 participants from Commercial International Bank Egypt (CIB Egypt). A glimpse of what we dove into: → The Global Digital Lending Landscape The global digital lending market is expanding at a pace that traditional systems cannot match. - Already at $507B in 2025 - On track to reach $890B by 2030 - Digital lending platforms growing from $12–19B to over $45B by 2029 Different regions are scaling digital credit in various ways. • North America (35% of activity): AI-first models and clearer regulations • Europe (29% of activity): PSD2 and open-banking partnerships • APAC (24% of activity): Fastest growth, smartphone-driven inclusion • LATAM + MEA (12% of activity): Mobile-first adoption with massive future upside Egypt is becoming a standout with 177+ FinTech startups, 14 subsectors, and lending + alternative finance leading the charge. → Technological Advancements The next decade belongs to lenders who adopt: • AI and machine learning • Blockchain and smart contracts • Biometric identity • Open banking APIs • RPA, NLP, IoT, edge infrastructure • Alternative-data decisioning → Global Case Studies The most successful lenders today prove one truth: distribution wins. 1. Klarna, Sweden (BNPL): Embedded at more than 500,000 merchants with AI-driven risk scoring. Handles 2 million daily transactions with delinquency near 2.5%. 2. Tide + Cashfree Payments, India (SME Lending): Uses GST and payments data for instant underwriting. More than ₹2,000 crore disbursed with loan journeys under 10 minutes. 3. Revolut, UK (Consumer Loans): 3-minute approvals with AI-determined pricing. A £2.3 billion loan book with default rates below 3%. 4. M-PESA Africa + KCB Bank Group, Kenya (Financial Inclusion): Micro-loans from $1 to $50 based on telco data. Over 30 million borrowers have been brought into the credit ecosystem. 5. Egypt’s Own Innovators – Valu, TRU, Sympl, Fawry MSME Finance: A powerful combination of alternative data, digital identity, and merchant networks. Transforming credit access for first-time borrowers and MSMEs. Banks across the region are now focused on reimagining credit delivery for a digital-first economy. This program equips teams with practical tools, global benchmarks, regional insights, and execution-ready models to drive that transformation. A heartfelt thanks to Yuvvraj S Kotian for his invaluable partnership in designing this tailor-made program. His rich understanding of the global FinTech landscape helped ensure the training was not just informative, but directly aligned to the development needs of CIB. Which part of the digital lending value chain are you looking to strengthen next?