High Yield Q&A: Private credit noise
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Article Type
BondTalk
Topic
High Yield
Published
March 06, 2026
Read time
7 mins
Authors
Thomas Hanson, CFA
Mark Benbow
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Private credit has dominated headlines in recent years, from rapid asset growth to the sudden gating of the Blue Owl Capital fund. We caught up with our Global High Yield Portfolio Managers – Thomas Hanson and Mark Benbow – to get their views on the private credit market and the implications for high yield bonds.

 

Give us a quick history lesson – what’s been driving the growth in private credit?

 

Private credit has experienced significant growth in recent years, really finding its footing in the aftermath of the 2008 Great Financial Crisis, as regulatory pressure forced banks to pull back from broader lending. Against a backdrop of structurally lower yields, the potentially higher returns on offer in private credit attracted strong investor demand, resulting in significant capital inflows to the asset class. The asset class has since ballooned to over $3 trillion in private credit funds, sitting within a broader private market of around $40 trillion that includes private corporate lending, commercial real estate and asset-based finance. Of that $3 trillion, roughly $2 trillion is high yield private credit – an important distinction when assessing the composition of the private credit market. It’s this high yield private credit market that we’ll focus on.  

 

How does private credit differ from the public high yield bond market?

 

There is a common misconception that high yield bonds and private credit are interchangeable. They are not. While there are some similarities, private credit is a structurally distinct market, and there are many important differences. 

  • Liquidity: Liquidity is one key difference between private credit deals and public high yield bonds. Both markets are relatively less liquid than larger, higher-rated markets such as investment grade bonds. However, private credit is truly illiquid in absolute terms, with underlying loans being private. Private credit deals are private agreements between a lender and borrower – there is no secondary market to speak of. Investor capital is typically locked up for a stated period, with no daily liquidity. Public high yield bonds, by contrast, are traded daily with market-based pricing, giving investors the ability to buy and sell at will.

  • Daily pricing: Because private credit loans are not publicly traded, they are seldom marked-to-market. Valuations lag reality and price discovery is largely absent. This creates an illusion of stability, low volatility on paper does not mean low risk in practice. Public high yield bonds benefit from continuous price transparency, with active daily trading ensuring a far more robust environment of price discovery at all times.  

  • Transparency: Private credit is opaque by design. Deal terms, potential covenants, lender protections and the underlying state of the business are rarely disclosed publicly. This opacity is tolerable in strong markets, but it amplifies risk sharply when conditions deteriorate. Not asking too many questions works well when times are good, but what about when things turn sour?


Taken together, these structural features explain why investors have historically demanded a higher risk premium to hold private credit. In prior years when rates were low and public bond yields weren’t overly attractive, that premium looked compelling. As yields started rising in public bond markets, the yield pick-up in private credit may need to reset for an asset class that lacks liquidity and transparency. 

 

Are there similarities between private credit and public high yield?  

 

The high yield bond market is not private credit, but there are some similarities. There is some overlap, primarily at the issuer level. Several lower-quality companies that previously issued in the high yield bond (or leveraged loan) market have moved to private credit to avoid the more onerous requirements of public markets. This has been quite positive for high yield as weaker credits departed, the overall credit quality of the public market improved, contributing to the sustained low default rates we have seen in recent years.

 

Although the two markets are distinct and have many differences, public high yield will not be immune to events that transpire in private credit. If there is volatility in one, it is almost certain to have a direct or indirect impact on the other. Same neighbourhood, different house. If there is a shock in private credit, we live next door and the risk-off sentiment is likely to reverberate across various markets. If investors need liquidity and can’t get it from the private credit market, then they may be forced to raise liquidity in the public markets, which could result in outflows from high yield. 

 

What’s currently going on in private credit?

 

Several pressures have converged. The AI-induced anxiety and the disruption it may cause across industries has put a spotlight on the private credit market’s heavy concentration in software and technology businesses - estimates indicate that roughly one-third of private credit exposure is in software businesses. As software companies face growing pressure across public markets, anxiety has spread to their private credit counterparts, some investors have begun trying to withdraw capital from funds.

 

This situation intensified recently as the Blue Owl Capital gating event brought these anxieties into focus as the company permanently shut the gates on one of its private credit funds. This rattled market sentiment and raised concerns about the ability of private credit investors to get their money back.

 

What are the implications for the high yield bond market, or markets more broadly?

 

In our view, the most obvious transmission channel is a deterioration in market technicals affecting both demand and supply.

 

Private credit is significantly less liquid than public high yield bonds. If a liquidity scare emerges, like the one we saw with the Blue Owl gating, investors needing to raise cash may turn to the most liquid proxy available: public high yield bonds. This could trigger outflows, weakening technicals and putting upward pressure on spreads in the near term.

 

Another thing to think about is how this would affect primary markets. If volatility in private credit markets intensifies, refinancing activity could slow sharply. Issuers who would normally refinance in private markets may instead return to public high yield. That would effectively reverse the multi‑year trend, and we could see the private credit issuers come back to the high yield market. A rise in high yield supply could weaken technicals and be another catalyst for wider spreads. A bull case (if there is one) is that public high yield could grow in importance as investors place a greater value on the liquidity and transparency attributes of the market, but that is more tenuous and longer term.  

 

Public high yield default rates have remained low, supported by a higher overall credit quality as more challenged companies accessed capital in private markets instead. If concerns around private credit result in investors demanding a higher risk premium, funding costs will rise. This is a double edge sword – for companies that can afford it, value may shift from equity holders to bond holders. For those that can’t, higher refinancing costs could drive an increase in restructuring activity.

 

Private credit will continue to play an important role in markets and investors’ portfolios. However, similar to other asset classes, rapid growth is usually accompanied with a few bumps in the road. And while private and public markets are clearly distinct asset classes, the pressures unfolding in the private credit market are worth watching closely as the ripple effects could influence supply-demand dynamics across the public credit market. Although private credit is not going away, we may see investors and companies migrate to public markets in search of transparency, liquidity, and daily pricing - attributes the public bond market has consistently maintained.

 

Important information

Authors

Thomas Hanson, CFA
Portfolio Manager
Thomas Hanson, CFA, portfolio manager, specialises in high yield bonds and is responsible for co-managing our global high yield strategies.
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Mark Benbow
Portfolio Manager
Mark Benbow, portfolio manager, specialises in high yield bonds and is responsible for co-managing our global high yield strategies.
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