Credit Markets Update Q4 2025

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

Opportunistic borrowing supported steady growth in deal activity during 2025
- Volume climbed to $709.0 billion, up from $661.2 billion in 2024, marking the second-highest new-Issue leveraged loan volume since 2021
- The share of refinancing fell to 44%, despite amassing the second highest refinancing volume of the decade, at $191.8 billion in annual volume
- While the long-anticipated M&A rebound has yet to fully materialize, new-money issuance from LBO and M&A activity led the charge in 2025, despite policy volatility and macroeconomic uncertainty
Broadly syndicated lenders have continued to gain momentum against direct lenders, narrowing the share gap in a fiercely competitive market. However, direct lenders edged out BSL in cross-flows by capturing multiple large deals
A strong high-yield bond market, driven by refinancing volume, was further energized by the Fed’s relatively dovish stance, supporting a 16% YoY increase in annual volume to over $330 billion in 2025 as quarterly average yield inches closer to 7%
The combined default rate fell to 3.35%, with liability management exercises remaining the preferred restructuring tool, accounting for 65% of total default activity in 2025
As expected, the Federal Reserve announced a third rate cut announcement in December 2025. Despite the cut, the Fed remains focused on labor market trends as well as inflation, which remains somewhat elevated

The market continues to favor borrowers as tight spreads and declining base rates are driving low cost of capital, which should continue to fuel deal activity in early 2026
Momentum in the 2025 M&A pipeline could also jump start a fresh supply of loans in the coming month, accelerating new issue momentum
As the Fed’s leadership transition nears in 2026, the Trump administration’s push for easing monetary policy could play a prominent role in supporting further monetary accommodation and reducing cost pressures for companies across the credit spectrum

Monetary policy remains dependent on clearer signals from job‑market and inflation data; any significant downside surprises could limit the support for additional monetary easing
Rising geopolitical tensions, including trade, border, or political conflicts could quickly dampen risk appetite disrupting the momentum
The surge in refinancing and repricing activity has pushed out near-term maturities, but a high refinancing wall remains for 2028 maturities, with a heavy concentration of B‑ or lower‑rated borrowers; this presents elevated execution risk for lower rated credits, which could test the credit market’s resiliency

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Credit Markets Update Q4 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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