In bond markets, US corporate issuers continued to enjoy favourable financing rates, which spurred a slew of fresh corporate bond issuances from a diverse range of issuers, including Goldman Sachs, Caterpillar Financial, and Equinix Inc., the latter extending a wave of borrowing to fund AI data centre infrastructure. Internationally, UK government bonds, or Gilts, struggled to rally despite slowing UK headline inflation, which was largely attributed to volatile fuel prices, minimizing the perceived need for an immediate Bank of England (BoE) rate cut. Japan’s largest life insurance company, Nippon Life Insurance, saw swelling unrealized capital bond losses to the tune of US$35 billion, as the country continues to face political challenges and sticky inflation. Life insurance companies in Japan frequently hold long-term bonds and the rapid rise in Japanese interest rates pushed the price of these long-term bonds down significantly. Financial reporting obligations caused these life insurance companies to mark the value of their bond holdings to current market prices, which led to the unrealized loss. Notably, Bank of America (BoA) invested $25 billion of its own capital into private credit markets, following a trend of Wall Street firms. Blue Owl Capital Inc.'s situation served as a cautionary example of the inherent risks in private credit investing, specifically the challenges that arise with retail redemptions despite the illiquidity premium investors receive.

US corporate investment grade credit spreads, which measure the additional yield (risk premium) investors demand for taking on the credit risk of corporate bond issuers over lower-risk government bonds, are currently around 0.77%, lows not seen since late 2024. Amidst this backdrop, last week featured a few notable two-part bond deals. Goldman Sachs Private Credit Corp. issued a US$1.1 billion debt sale with 2028 and 2031 maturities, priced to yield 1.85% and 2.60% above US Treasuries, respectively, with proceeds intended to repay outstanding debt and for general corporate purposes. Separately, Caterpillar Financial launched a US$1.3 billion two-part deal with 2029 maturities, consisting of a fixed-rate and floating-rate bond. Lastly, Equinix Inc. sought to raise US$1.5 billion in a two-part deal to fund AI data centre infrastructure and additional corporate needs.

BoA’s recent $25 billion investment in the private credit space followed other major Wall Street firms such as JPMorgan Chase and Goldman Sachs who have expanded private credit commitments. However, heightened competition in the growing multi-trillion dollar space, on a backdrop of a declining interest rate environment in the US, may encourage private credit managers to pursue riskier, higher-interest loans to maintain returns. Additionally, private credit opacity has been a boon for private credit in the sense that less-frequent valuations smoothed out volatility and looked past cycles and large swings experienced in public debt markets. However, the collapse of Tricolor holdings (sub-prime auto lender) and First Brand Groups (global auto supplier) in late 2025 should serve as a stark reminder of systematic risk events that can take place in private credit markets.