Please see below, an article from EPIC Investment Partners which discusses the possibility of a changing landscape in credit markets. Received today – 22/05/2026
For much of the past two years, investors have treated high interest rates as a market problem rather than a balance-sheet problem. Equity multiples adjusted, bond prices fell, mortgage activity slowed and leveraged borrowers complained. But the assumption remained that the system could muddle through. If inflation softened, the Federal Reserve would cut. If growth slowed, long yields would fall. If companies struggled, they would refinance.
That assumption is becoming harder to defend. The US 10-year Treasury yield is back around 4.6 per cent, while the 30-year yield has recently pushed towards 5.2 per cent. The long end is no longer just expressing views on growth and inflation. It is also carrying a fiscal premium. Heavy Treasury supply and a rising federal interest bill are putting a higher floor under the global cost of capital.
That matters because a 5 per cent long bond is not just a problem for Washington. It is the benchmark against which every risky borrower must compete. If the US government pays more to borrow for 30 years, leveraged companies and private equity-backed borrowers must pay more again. That extra cost comes from margins, investment, employment or default.
Housing shows the pressure first. Mortgage rates above 6.5 per cent have preserved the lock-in effect that has frozen turnover. A homeowner with a 3 per cent mortgage does not move casually into a 6.5 per cent mortgage. Fewer sales also mean weaker activity in furniture, appliances, removals, renovation and local services.
Corporate credit is the bigger risk. The zero-rate era allowed companies to borrow cheaply and push maturities into the future. That future has arrived. About $12.4tn of global corporate debt is due to mature between 2025 and 2029, including roughly $3.4tn of speculative-grade debt. The wall is no longer a distant abstraction. It is now running through the rest of the decade, with pressure building into 2027 and 2028.
The issue is not whether every borrower can refinance. It is the price at which refinancing is possible. A company that borrowed at 5 per cent and refinances at 8 or 9 per cent has had its business model repriced. Debt service becomes a tax on operating income. Capital expenditure is delayed, hiring is frozen and cash once used for growth is redirected to keeping the capital structure alive. This is most dangerous in markets built for cheap money. Private equity deals that worked when debt was cheap may still own viable businesses, but the capital structures above them may no longer work. The balance sheet cracks before the payroll data does.
Credit markets still price a gentle outcome. High-yield spreads remain far from recessionary levels. That may prove right if growth holds and the Fed can ease without reigniting inflation. But spreads may also be flattered by modern credit structures. Covenant-lite loans delay intervention, liability management exercises postpone formal defaults and private credit can keep problems away from public markets for a while.
This is where the old developed-versus-emerging market distinction looks crude. The better split is between borrowers that depend on continuous refinancing and those with genuine external strength. A leveraged US company may be more fragile than a sovereign labelled emerging market but supported by strong net foreign assets, commodity revenues or conservative fiscal policy.
The market needs a better category for these issuers: wealthy nations. These are sovereigns with substantial net foreign assets, stronger external balance sheets and the liquidity to withstand a higher cost of capital. The trade is not simply to buy emerging-market sovereigns. That is too broad. The argument is to buy balance sheets that are mislabelled by geography.
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Alex Kitteringham
22nd May 2026