Market Review
The Federal Reserve dressed up as a hawk for Halloween
Global equities rose modestly in October, and marked the sixth consecutive month of positive returns for the S&P 500® – another record high. Large-capitalization technology stocks outperformed, with both the Nasdaq Composite and MSCI Emerging Markets indices leading the way for the month. Earnings season was in full swing; earnings growth exceeded expectations, there were strong results for most of the “Magnificent 7” stocks – Alphabet, Inc.; Amazon.com, Inc.; Apple, Inc.; Meta Platforms, Inc.; Microsoft Corp.; Nvidia Corp. and Tesla, Inc. – and artificial intelligence (AI)-related stocks bolstered their returns.
In October, the Federal Reserve (Fed) cut the fed funds rate at the second consecutive meeting, reducing the rate by 25 basis points as expected. Fed Chair Jerome Powell’s post-meeting comments struck a hawkish tone in contrast to the rate cut, emphasizing caution amid a dearth of government economic data and that another rate cut in December is uncertain. Major bond indices were relatively flat for the month as U.S. Treasury (UST) yields increased following Chair Powell’s comments, and market expectations for a December rate cut decreased from a probability of approximately 95% to 65%.
Theme of the Month
Pest control
Credit market issues made headlines last month, along with the high-profile bankruptcies of auto parts supplier, First Brands Group and auto lender, Tricolor Holdings, LLC. The events included both fraud allegations and questions about credit underwriting rigor, leading to insect analogies related to private credit from prominent industry executives, even though the bankruptcies occurred in the traditional asset-backed securities market.
In our view, credit markets are not on the precipice of widespread stress or weakness. Typically, credit spreads serve as a leading indicator that widens when investors anticipate deteriorating economic conditions that could lead to a higher risk of defaults. Credit spreads, or the additional yield a corporate bond earns above a comparable UST, remain near cycle lows (Figure 1). In October, there was a minor uptick in credit spreads, with levels remaining well below the spikes experienced in 2020 and lower than longer-term averages. Default rates in the high yield and leveraged loan (commercial bank lending) sectors also remain below long-term averages, with no meaningful increase last month (Figure 2). Those higher-risk areas of “liquid” credit are one of the first places to monitor during times of stress, but they are currently indicating that the collapses were isolated incidents.
The private debt market has less transparency than liquid credit but is an area that has experienced considerable asset growth in recent years (Figure 3). One lens into the outlook for private credit comes via the stock price trends of business development companies (BDCs), which operate similarly to a private debt fund in the extension of loans but are structured as publicly traded, closed-end funds. While the stock prices of BDCs have generally not performed well this year, the dispersion among them is noteworthy. We believe the same consideration applies to private credit writ large – there are undoubtedly some riskier areas of concern in a space that has grown aggressively, but the dispersion in quality is a defining characteristic.
To date, we do not see broad, systemic issues in credit markets, public or private. Historically, a triggering event, such as rising interest rates or an economic shock, has been required to create significant credit risk. In our view, last month’s credit events and similar events that may temporarily capture news headlines will not derail the overall economic direction.
The Fed is expected to continue to lower short-term interest rates in the coming months, which should be positive for the economy and provide breathing room for riskier borrowers in the credit markets. For debt rated below investment grade, active management plays an important role in the public credit space and a crucial role in private credit. For investors, we believe it is important to understand that there is a middle ground between “isolated” issues and “systemic” concerns, in which the economy and markets hold together amid an increasing amount of sorting.
Figure 1. U.S. Investment Grade and High Yield Bond Spreads
Credit spreads remain tight, near cycle lows
As of 10/31/2025. Source: Bloomberg L.P.
View accessible version of this chart.
Figure 2. High Yield and Leveraged Loan Bond Default Rates
Bond defaults have remained low in the extended credit space
As of 10/31/2025. Source: Bloomberg L.P.
View accessible version of this chart.
Figure 3. Growth in Private Debt Assets Since 2000
Private debt fund assets have increased meaningfully in recent years
As of 10/31/2025. Source: Preqin
View accessible version of this chart.
Figure 1. U.S. Investment Grade and High Yield Bond Spreads (view image)
Credit spreads remain tight, near cycle lows
Year |
U.S. Corp Investment Grade |
U.S. Corp HY |
2015 |
159.28 |
560.20 |
2016 |
132.35 |
477.41 |
2017 |
94.87 |
336.63 |
2018 |
117.46 |
369.58 |
2019 |
109.70 |
387.39 |
2020 |
125.03 |
503.69 |
2021 |
86.83 |
285.41 |
2022 |
157.53 |
462.44 |
2023 |
128.13 |
431.65 |
2024 |
83.44 |
282.58 |
2025 |
78.08 |
279.63 |
As of 10/31/2025. Source: Bloomberg L.P.
Figure 2. High Yield and Leveraged Loan Bond Default Rates (view image)
Bond defaults have remained low in the extended credit space
Date |
High Yield Bond Default Rate |
Leveraged Loan Default Rate |
10/2025 |
0.62% |
0.88% |
9/2025 |
0.62% |
0.83% |
8/2025 |
0.57% |
1.04% |
7/2025 |
0.47% |
0.98% |
6/2025 |
0.46% |
0.87% |
5/2025 |
0.21% |
1.08% |
4/2025 |
0.15% |
0.97% |
3/2025 |
0.21% |
0.97% |
2/2025 |
0.36% |
1.14% |
1/2025 |
0.42% |
1.20% |
12/2024 |
0.47% |
1.15% |
11/2024 |
0.52% |
0.94% |
As of 10/31/2025. Source: Bloomberg L.P.
Figure 3. Growth in Private Debt Assets Since 2000 (view image)
Private debt fund assets have increased meaningfully in recent years
Date |
Private Debt Dry Powder |
Private Debt Loans |
2025 |
514.1 |
1240.7 |
2023 |
497.2 |
1186.4 |
2021 |
460.3 |
915.2 |
2019 |
362 |
569 |
2017 |
301.2 |
414.7 |
2015 |
203.5 |
322.1 |
2013 |
160 |
273 |
2011 |
110.1 |
250 |
2009 |
90.9 |
224.9 |
2007 |
87.5 |
127.3 |
2005 |
37.7 |
63 |
2003 |
28.8 |
41.9 |
2001 |
18.9 |
32.6 |
As of 10/31/2025. Source: Preqin
