Credit Markets Update Q3 2025
Read more about M&A activity and trends in this sector
Credit Markets Update Q3 2025
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Credit Markets Commentary
In Q3 2025, opportunistic borrowing drove record deal activity after a sluggish summer. With easing monetary policy on the horizon, investors are keeping an eye out for a long-awaited rebound in M&A activity.
Opportunities Abound
- During the third quarter, opportunistic issuance dominated the landscape driven by robust investor demand and an easing monetary policy outlook
- Volume climbed to $202.0 billion, up sharply from $160.1 billion in the previous quarter and $165.1 billion in the same period last year
- Investor demand drove spreads to tighten to post-2008 lows, fueling refinancing and repricing activity
- M&A activity remained sluggish, but issuers increased reliance on dividend recaps to monetize investments
- Private credit markets continued to navigate a lack of new issue supply, relying on a slowly rebuilding M&A pipeline
- Broadly syndicated lenders gained edge over direct lenders through larger deals and flexible DDTL-like structures
- The high-yield bond market posted its strongest quarterly volume since the second quarter of 2021, driven by opportunistic refinancings as issuers sought to lock-in cheaper debt amid lowering base rates and tight spreads
- Use of Liability Management Exercises (LMEs) for restructuring remains persistent among investors, accounting for 66% of total combined defaults recorded during LTM Sep-2025
- The Federal Reserve announced the first rate cut of 2025 in Q3 (and a second one in October). The cuts signaled concerns about job growth, but the Fed also stated that a cut in December is not a “forgone conclusion.”
Tailwinds…
- The market is tilted in favor of borrowers with relatively low pricing and flexible terms, which should continue to drive market activity
- After the disruption during the summer, a rebuilding M&A pipeline could fuel a fresh supply of loans in the coming months
- The planned monetary policy easing should reduce cost pressures on companies across the credit spectrum and support growth in high-yield and leveraged loan issuance
…Risks on the horizon
- The latest monetary policy prioritizes job growth, even as inflation remains elevated; a significant surprise in inflation could challenge further monetary easing
- Any escalation of trade wars or hot wars could quickly dampen the risk appetite driving the current market
- A prolonged government shutdown could start to impact overall economic growth, which could lead to a slowdown in deal activity
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Credit Markets Update Q3 2025
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In today’s market, you need an advisor with objective insight at every step of the transaction process. We work with you throughout the full deal cycle to create value and successfully execute your deal strategy.
Howard P Lanser
Managing Director, KPMG Corporate Finance LLC
Howard P Lanser
Managing Director, KPMG Corporate Finance LLC