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Credit Markets Update Q1 2026

Read more about M&A activity and trends in this sector

Credit Markets Update Q1 2026

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Credit Markets Commentary

A strong start to 2026, riding on increased M&A-backed issuance, turned significantly weaker in March as investor sentiment deteriorated due to war in the Middle East and diminishing rate cuts expectations.

War Driving Volatility and Uncertainty as Q1 Closed

  • New-issue volume slowed after a strong start to 2026 as investor sentiment deteriorated through the first quarter as the war in the Middle East commenced
    • Volume reached $173.3 billion, up from $138.1 billion in the preceding quarter, but down from $195.1 billion in the same period of 2025
    • Refinancing issuance and maturity extensions both moderated, with the refinancing share falling to 37% of institutional loan volume from 49% in the same period of 2025
    • M&A-backed institutional loans accounted for 46.0% of institutional loan volume during the quarter, totaling $74.6 billion, the highest level since $94.4 billion during the first quarter of 2022
  • Direct lenders continued to edge out broadly syndicated lenders, despite increased selectiveness over software sector exposure, owing to their capability to clear the deals at higher risk premiums
  • High-yield bond market started the year strong before volumes softened in March due to the Middle East conflict; the issuance totaled $79.7 billion for the quarter with an average yield of 7.08%
  • The combined default rate declined to 3.48% for LTM March 2026, with liability management exercises (LMEs) remaining the preferred restructuring tool, accounting for 59% of total default activity
  • The FOMC paused rate cuts in 2026 and will continue to monitor an uncertain macroeconomic outlook with the spike in key input prices. Ongoing war in the Middle East and resulting oil-price volatility continue to weigh on overall risk sentiment

Tailwinds…

  • M&A-driven issuance continues to support primary-market activity, with mega-deals sustaining deal flow despite broader volatility
  • Market access remains open for high quality issuers across leveraged loans, high yield, and direct lending, enabling borrowers to raise capital for acquisitions and growth
  • High-yield issuance is supported by a continued demand for CapEx and expansion financing tied to AI/data-center-related investments

…Risks on the horizon

  • Refinancing and maturity-extension activity is slowing, even as near-term maturities skew heavily toward B- and lower-rated borrowers, raising rollover and default risk
  • Geopolitical shocks, oil-price volatility, and persistent uncertainty could continue to disrupt risk appetite and drive episodic market pauses
  • Inflation remains sensitive to energy and commodity price moves; continued price pressure will influence the path of monetary policy, which could lead to a halt in rate cuts and even rate increases that would rattle the markets

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Credit Markets Update Q1 2026

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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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