Episode summary
Inside Credit Market’s Issuance Boom and Private Lending Risks
Thoughts on the Market (Morgan Stanley)
· · Hosts: Andrew Sheets, Vishwas Patkar
Summary
Global credit markets are seeing a record wave of supply, and the guest says Morgan Stanley’s early-year call is largely playing out. Investment-grade issuance is running above expectations, high yield is also strong, and a big part of the boom is being driven by AI-related capex from hyperscalers and a pickup in M&A. The guest argues this is a notable shift because the financing demand is more competitive than opportunistic and, in some cases, is pricing wider than existing bonds, with knock-on effects for other issuers.
The conversation then turns to private credit, especially direct lending, which the guest says has grown sharply over the last decade to about $1.3 trillion. He says investors are more anxious because the market is less transparent, yields have compressed as the Fed eased, and a series of negative headlines around collateral and accounting has added to the unease.
The biggest current concern, the guest says, is software exposure. He points to heavy leverage in the sector, more than 50% of bank loans rated B minus or lower, and about $65 billion of software loans maturing through 2028. His bottom line is that private credit may deliver subpar returns and credit valuations still look too tight, so hedges make sense even if they can be costly.
Key takeaways
- The guest says Morgan Stanley’s 2026 issuance forecast is broadly on track, with IG up about 21% and high yield up about 25% through mid-March.
- He says AI infrastructure spending from hyperscalers has already generated more than $80 billion of dollar-market issuance year to date.
- The guest says private credit direct lending has grown from about $500 billion a decade ago to roughly $1.3 trillion today.
- He says the main stress point is software, where more than 50% of bank loans outstanding are rated B minus or lower.
- He says credit valuations are still too tight and investors should consider hedges despite the carry cost.
Notable quotes
“we came into the year expecting a record two and a quarter trillion of gross issuance in investment grade”
“year to date we've had north of 80 billion of issuance uh from hyperscalers alone in the dollar market”
“private credit overarchingly is a is a big umbrella term. It includes direct lending to businesses”
“It was about 500 billion or so 10 years ago. It's about 1.3 trillion right now”
“we are in for a period where returns might be subpar”
How the episode opens
Welcome to Thoughts on the Market. I'm Andrew Sheets, global head of fixed income research at Morgan Stanley.
And I'm Vishwas Bucker, head of US credit strategy at Morgan Stanley. And today on the program, we're going to talk about two of the biggest questions facing global credit markets, a rush of issuance and questions around private credit. It's Friday, March 27th at 2 p.m.
in London. Vishwas, it's great to have you in town. Uh, talking over what I think are two of the biggest questions that are hanging over the global credit market, a large wave of issuance and a lot of questions around a segment of that market, often known as private credit.
So, let's dig into those in in turn. I want to start with with issuance. You know, you and your team had a pretty aggressive forecast at the start of the year for a significant level of supply.
How's that going? How is it shaping out? We're now almost through the first quarter.
Yeah. So, uh, we came into the year expecting a record two and a quarter trillion of gross issuance in investment grade. That's 25% higher than last year.
That would mark a record one-year number for investment grade. And for the high yield market, we expected about 400 billion of issuance up roughly 30%. If I were to mark tomarket those, uh, the forecast is roughly playing out as expected through mid-March.
um IG issuance is up about 21%. High yield issuance is up about 25%. So so far at least it's uh it's along the lines of what we had called for more importantly though I I think uh when I think about the drivers of the issuance that I think in some ways is a little more validating because there were two big components of what was going to drive the issuance.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- credit issuance boom
- private credit risks
- fixed income
- u.s. credit strategy
- debt issuance
Watch the episode
Watch “Inside Credit Market’s Issuance Boom and Private Lending Risks” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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