Executive Summary
The outlook for 2026 is one of the most complex in recent memory. Credit spreads are extremely tight across investment grade and high yield in both Europe and the US, reflecting a supportive macro backdrop of strong US growth and a return to trend-like growth in Europe.
But headline valuations obscure how non-linear credit markets have become. Tight spreads are co-existing with a prolonged default cycle that is generating real dispersion across the investable universe – outcomes increasingly shaped by capital structure, documentation and access to liquidity rather than incremental changes in growth.
At its core, our view is simple:
The surface looks calm. The undercurrents, from the AI cycle to public-private convergence, will define where the real opportunities and risks lie in 2026.
Key Takeaways
- 2025 was defined by resilience and dispersion — generic beta spreads sit at their tightest post-GFC levels, even as distress and negative returns emerged in pockets across leveraged loans and CLO equity
- The AI cycle is the single most important factor for 2026 — contributing roughly a quarter of US GDP growth, but concentrating risk in equity markets and creating a $1.3tn credit financing gap through 2028
- Supply is becoming the dominant force in credit markets, with net issuance forecast to exceed $1.5tn in 2026, driven largely by hyperscaler capex
- A steep European maturity wall in 2028, combined with accelerating public-private convergence, is creating structural stress points — and opportunities — across leveraged finance
- The 2026 opportunity set spans three themes: Old World Survival, New World Disruption, and Regulation, Policy & Geopolitical
Strong Momentum, Fragile Balance
US growth has repeatedly surprised to the upside, with Q3 GDP at 4.4% annualised and the Atlanta Fed forecasting 5.4% for Q4. Europe is showing genuine signs of traction too, aided by German fiscal spending on defence and infrastructure, expected to lift real GDP growth to 1.5% by year-end.
The single largest risk to this picture is AI. The sector now represents close to 50% of the S&P 500’s market cap and contributed around a quarter of US GDP growth through Q3 — but hyperscaler capex needs mean credit markets will be called on to fill a $1.3tn funding gap through 2028. Beyond AI, fiscal sustainability concerns in Japan and France, weakening US labour data, and elevated geopolitical risk (Iran, Venezuela, Ukraine/Russia, Greenland) round out the risk picture.
The Credit Market Is Its Own Ecosystem
Spreads are unlikely to reprice materially wider given the supportive macro backdrop — but the credit market has its own dynamics. Supply is becoming the dominant factor, with net issuance forecast at just over $1.5tn in 2026, much of it driven by hyperscaler-related IG issuance.
Europe faces a steep refinancing cliff: nearly €150bn of leveraged finance debt matures in 2028, roughly 2.5x the combined maturities of 2026 and 2027. A significant portion of this debt originated during the loose underwriting standards of 2021, raising the likelihood of restructuring activity ahead.
Public and private credit markets continue to converge, with the private credit, high yield bond, and broadly syndicated loan markets in Europe now comparable in size. Liability management exercises have also grown more hostile to creditors, with asset layering and third-party new money increasingly common — a dynamic we expect to persist through 2026.
Source: Bloomberg
The Opportunity Set in 2026
We see the 2026 opportunity set falling into three broad themes:
Old World Survival — European cyclicals (chemicals, building materials, autos), telecoms, non-bank financials, and distressed/restructuring opportunities as public-market stress increasingly filters into private solutions.
New World Disruption — Robotics and automation, AI-driven disruption of software and media, and the GLP-1 theme reshaping consumer sectors from food & beverage to packaging.
Regulation, Policy and Geopolitical — Energy market dislocations, US housing policy, the growing role of non-bank capital through Significant Risk Transfers (SRTs) and Asset Backed Finance (ABF), and ongoing geopolitical tensions creating idiosyncratic opportunities, particularly in emerging markets.
Source: Bloomberg, Company Reports
Conclusion
Beneath a calm surface, multiple powerful forces are reshaping credit markets — from the generational AI cycle to less visible dynamics unfolding across regions, sectors and capital structures. Together, they create an opportunity set that is not just large, but unusually deep and wide.
This is a highly compelling environment for active credit investing. Capital is needed, complexity is rising, and creative solutions matter more than ever.