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Credit Markets Update Q2 2025

Read more about capital markets activity and trends

Credit Markets Update Q2 2025

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Credit Markets Commentary

Major tariff policy changes shook the market in April, but investor optimism bounced back by the end of the quarter as trade deals and deadline extensions were announced

Summer Heat Wave Ahead

  • During the second quarter, investor sentiment in the leveraged loan market recovered quickly after the spike in volatility in April as trade war concerns dissipated
    • Volume of $135.9 billion in second quarter marked a solid result after a lost April
    • A fresh supply of new loans helped make up for declining refinancing volumes amid fluctuating investor appetite
    • Spreads settled near multi-year lows despite early volatility in the quarter
  • Private credit markets continued to navigate a technical imbalance as strong pent-up demand is still waiting for the much-anticipated rebound in M&A activity
    • With 188 deals in the second quarter, PE exit activity declined for the fourth consecutive quarter
  • Broadly syndicated lenders lost momentum during the month of April while direct lending recorded $59.6 billion with 207 deals during the second quarter
  • High yield volume made a surprising recovery in May and June, surpassing the preceding quarter and nearly equaling the same period in 2024 as the high levels of liquidity in the market met with fresh supply including M&A, LBO, and dividend recapitalizations
  • As the Trump administration’s trade policies take their final shape, the Federal Reserve is continuing with its wait-and-see approach and is committed (for now) to its previously planned two rate cuts during 2025

Tailwinds…

  • The market is tilted in favor of borrowers with relatively low pricing and flexible terms, which could portend a hot summer of market activity
  • The new administration was successful in pushing through its pro-growth “Big Beautiful Bill” with tax cuts and de-regulation, which should spur economic activity 
  • Sponsors seeking ways to monetize an aging portfolio could drive a new supply of loans in the second half of the year

…Risks on the horizon

  • Although inflation has so far been muted, any uptick in inflation may slow (or even stop) the pace of rate cuts, which could result in a significant sell-off in the markets
  • Geopolitical risks including potential hot wars and trade wars with major economies are still front and center in investors’ minds; any increase in these concerns might be a tipping point for a recession

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Credit Markets Update Q2 2025

Read more about the credit markets activity during Q2 2025

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Howard P Lanser
Managing Director, KPMG Corporate Finance LLC
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Howard P Lanser
Managing Director, KPMG Corporate Finance LLC
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