Global credit markets may be entering a stress test. PIMCO, one of the world’s largest bond managers, is warning that cracks are forming in segments of the debt market—particularly private credit and direct lending—that could squeeze borrowers’ funding options.
PIMCO’s leadership remains cautiously bullish about asset-backed finance. However, it signals that sectors lacking collateral or scale may struggle to borrow on favorable terms if conditions tighten.
One culprit is extremely tight credit spreads—the premium investors demand for holding corporate debt over risk-free instruments. These spreads are now near historic lows, leaving little room to absorb credit deterioration.
Signs of strain in private credit markets, where transparency is lower and leverage higher, are beginning to surface. FT’s recent work on corporate debt emphasizes how defaults and debt structure opacity are raising red flags.
For corporate issuers, the dilemma is clear: lock in funding now at steeper terms or wait—and risk being locked out. Market participants caution that the next few quarters may be a stress point for credit risk assessment.
