Leveraged Credit 2025 Review & 2026 Outlook
Polen’s leveraged credit team reflects on the resilience and shifting dynamics of 2025, and explores how AI and economic uncertainty may shape opportunities and risks for investors in the year ahead.
Key Highlights
2025: Disruption Met with Resilience: Despite a turbulent year marked by rising volatility, inflationary pressures, and a record-long U.S. government shutdown, leveraged credit markets proved resilient, with high yield bonds and leveraged loans posting positive returns for the third year in a row.
Strong Technicals; Higher Quality Outperforms: Technicals remained strong as refinancing and repricing activity extended maturity profiles. Investors favored higher-rated credits, which outperformed lower-rated peers in both the U.S. and Europe amid volatile conditions.
Defaults Remain Low: Default rates for high yield bonds and loans stayed subdued in the U.S., supported by solid balance sheets and abundant private capital. While Europe saw a modest uptick, overall distress levels remain limited, and the 2026 outlook is broadly stable.
Private Credit Faces New Challenges: The private credit market continued to expand, particularly in AI-related deals. However, rising default rates and a more front-loaded maturity wall are emerging risks demanding close attention.
2026 Outlook Demands Agility: Artificial intelligence is set to remain a powerful force, creating both opportunity and risk in leveraged credit. With tight spreads, political uncertainty, and economic headwinds ahead, the ability to manage portfolios with agility and selectivity will be critical for success in 2026.
Important Disclosures
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References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
The ICE BofA US High Yield Index, which is maintained by ICE Data Indices, LLC, is market capitalization weighted and comprises U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market.
The S&P UBS Leveraged Loan Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. It is impossible to invest directly in an index. The performance of an index does not reflect any transaction costs, management fees, or taxes.
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