The Horizon Scan: Anticipating Credit Shifts

In 2025, resilient growth, tight issuance, and deep liquidity masked underlying shifts in the credit markets. As we peer into 2026, one can anticipate a pronounced rebalancing of power, transitioning from a seller's to a buyer's market. This horizon scan unpacks the primary catalysts—from massive AI-driven capital expenditure to a renewed M&A wave—and equips readers with frameworks to adapt, allocate, and prosper in the months ahead.

Credit card loans and commercial lending figures softened in H1 2025, but banks have reinforced reserves, setting a foundation for selective but sustained credit growth. Meanwhile, private credit platforms gained traction, appealing to borrowers who value agility over traditional banking channels. These undercurrents hint at an evolving ecosystem where thematic insights, rigorous underwriting, and dynamic portfolio management become indispensable tools for discerning investors.

Foundations from 2025

The backdrop of 2025 featured robust economic fundamentals, limited new corporate debt issuance, and persistent demand from real-money investors seeking yield. Although April volatility tested resolve, deep liquidity quickly absorbed shocks, showcasing the market's resilience under stress.

Record M&A volumes, particularly in technology, media, and communications, signaled reawakening deal appetite. Hyperscalers like Google and Microsoft accelerated AI capex, reshaping the traditional credit composition of blue-chip borrowers. Low yields, below 4.75% for investment-grade, further incentivized issuers to tap markets, tilting technical conditions toward borrowers and setting the stage for upcoming shifts.

AI Infrastructure and Hyperscaler Capex Boom

In 2026, hyperscaler capex is expected to eclipse historical norms. Over $1.5 trillion committed by the five largest digital giants will require significant financing through public and private debt markets. Industry projections estimate $300–400 billion deployed annually via bonds, leveraged loans, and securitizations, introducing a quasi-risk-free spread floor at 5% for top-rated long-dated issuance.

However, AI-driven capex outstrips near-term revenue growth, placing pressure on free cash flow generation. This financing gap elevates the importance of diversified funding sources, including asset-backed securitizations and private credit structures. Investors must consider credit tenancy duration, covenant quality, and sector concentration when allocating to compute and data center credits.

M&A and Leveraged Buyout Revival

Falling borrowing costs and normalized valuations pave the way for a pronounced rebound in mergers and acquisitions. Analysts at Morgan Stanley forecast nearly $2 trillion in US investment-grade issuance stemming from strategic transactions and leveraged buyouts in 2026, a testament to renewed sponsor confidence.

Private equity houses are likely to embrace risk more assertively, exploiting valuations that have moderated after recent market gyrations. With levered loan costs down to 7–7.5% from roughly 10% the previous year, LBO volume surged 40% year-over-year in late 2025. This environment of balanced valuations and low financing costs creates fertile ground for selective dealmaking that can unlock outsized equity returns.

Supply Dynamics and Issuance Forecasts

Issuance forecasts indicate US investment-grade net supply approaching $1 trillion as maturities and refinancing needs rise. This uptick will apply upward pressure on spreads, potentially leading to a modest IG spread widening across markets of 10–20 basis points, yet still below long-term historical averages.

Globally, new issuance growth is projected to decelerate to around 5% in 2026, down from a 12% surge in 2025. Market participants should watch for supply bottlenecks in structured credit vehicles and anticipate pockets of technical dislocations as primary markets wrestle with heavy supply and evolving investor positioning.

Private Credit Expansion and Convergence

Private credit, once a niche segment, is maturing into mainstream financing. Direct lending and asset-backed strategies in Europe saw double-digit growth, while retail allocations in the US expanded from $0.1 trillion to an anticipated $2.4 trillion by 2030. These figures illustrate a powerful shift toward diversified sectors driven by bespoke demand, where borrower credit profiles and deal structures are tailored more precisely.

The convergence between public and private markets is accelerating. Fluid structures now allow issuers to transition between private and public formats with ease, fostering fluid public-private refinancing dynamics that benefit both borrowers and investors. As banks retrench selectively, private lenders will play an outsized role in financing middle-market and specialty assets.

Banking and Traditional Credit Trends

As central banks signal potential rate cuts, loan growth is expected to recover, particularly in corporate segments funding AI and digital infrastructure. Even cash-rich firms will maintain low-cost revolvers and term loans to capitalize on favorable debt markets.

Consumer credit metrics tell a more cautious story. Credit card balances dipped by 2.8% in H1 2025, while commercial real estate exposure gradually stabilized after prior stress. Banks are adopting more discriminating credit standards, leveraging higher reserves to navigate potential upticks in loan provisions, particularly if unemployment rates trend upward.

Risks, Divergences, and Investor Strategies

While the broader environment offers compelling opportunities, investors must remain vigilant. Structural factors such as political polarization, regulatory shifts in non-bank finance, and climate-related mandates can amplify dispersion across credit quality and sectors.

• Increased default divergence between high-grade and leveraged credits
• Heightened governance, environmental, and cybersecurity considerations
• Potential for correlation spikes during market stress episodes

Anchoring portfolios with high-quality, liquid positions and deploying thematic satellite allocations can balance risk and return. Emphasizing robust risk management across portfolios ensures resilience amid unexpected shocks.

Opportunities Across the Credit Spectrum

The evolving credit backdrop is not solely about risk. Thematic opportunities abound in AI infrastructure financing, private credit tranches with floating-rate protection, and specialized asset-backed transactions in sectors like sports facilities and media royalties.

• Secured bonds funding data center expansions
• Direct lending structures with built-in covenant protection
• Hybrid instruments in real assets offering inflation linkage

Investors can leverage cross-asset approaches, marrying macro insight with granular credit analysis. Staying nimble—applying measured three times, cut once rigor—will be vital to capitalize on dislocations and emergent value.

Sector Projections for 2026

As we navigate the crossroads of technology-driven capex, renewed deal activity, and shifting capital structures, the 2026 credit landscape will reward those who blend strategic foresight with disciplined execution. By harnessing data-driven models, scenario analysis, and stringent underwriting, market participants can position for steady income and measured capital appreciation.

This horizon scan underscores a pivotal inflection point. Adopting a forward-looking stance—evaluating thematic currents such as AI dominance and private credit ascendency—will empower investors to both seize opportunities and mitigate vulnerabilities in the months ahead.