1. Record High M&A Activities Can Unlock More Catalyst-Driven Opportunities
M&A activity in North America surged in Q3 with a two-decade high of $920bn in deals announced during the quarter. Elevated deal flows can create a fertile ground for active credit managers to add value.
M&As can be viewed as “credit negative” as firms typically increase leverage to enhance equity returns, but these events can also create compelling security-specific opportunities. For instance, when Saudi Arabia’s Public Investment Fund announced a take-private deal for Electronic Arts (“EA”), the company’s long bonds rallied more than 30% due to a “change of control” clause that suggests they will likely be taken out at par. While we did not participate in the EA deal, we are actively monitoring for these idiosyncratic opportunities as M&A activity remains elevated.
Source: BofA Securities, Goldman Sachs Global Investment Research. Data as of September 18, 2025.
2. Elevated Credit Spread Dispersion in US IG Bonds Supports Active Trading
Since 2024, the prevailing narrative has been that “credit spreads are tight.” However, the past 12 months have seen a notable increase in dispersion around the average spread level in US investment-grade bonds, despite the index’s tight valuation. This is encouraging for active managers as greater dispersion creates opportunities to capitalize on price dislocations. Notably, the spread dispersion is particularly elevated for BBB-rated credits, the largest and most liquid segment of corporate bond markets.
Source: Barclays. As of September 19, 2025. Dispersion is calculated by taking the standard deviation of bond-level OAS (i.e., all of the bonds in the index but winsorized – excluding the top/bottom 1% of bonds by OAS), and then dividing by the average OAS on a daily basis.
3. Private Markets Face Growing Concerns Amid Increased Defaults
This year, default rates in the US private credit market have climbed above 8%, accompanied by several private credit firms gating redemptions. At the same time, there has also been a significant divergence in performance between the S&P 500 and publicly listed BDCs, which are often seen as a proxy for private credit portfolios. We believe this performance lag is indicative of growing investor concerns around valuations and the risks of further private debt defaults.
Source: Fitch Ratings, Bloomberg. Default rate data as of August 30, 2025; Equity price data as of September 30, 2025.
4. Diverging Rates Trajectories Across Regions are Driving a Shift in Issuer Funding Choices
As rates have fallen in Europe but stayed elevated in the US, the gap in funding costs for global issuers has widened. In response, many global issuers have shifted their financing source by tapping the Euro market more heavily while reducing their USD bond issuance. This shift will likely broaden the opportunity set with an expanded Euro issuer universe and enhanced market liquidity.
Source: TDSI. Data as of October 1, 2025. Issuance focuses exclusively on new issuance and excludes taps from existing bonds.
5. Political Turmoil Results in Negative Credit Spreads in French Issuers
In a reversal of past trends, Italy is now viewed as a higher-quality sovereign borrower than France. This shift stems largely from growing concerns over France’s fiscal sustainability, which have pushed French government yields higher. As a result, many high-quality French corporates are trading at lower yields than the sovereign itself, indicating a negative credit spread. A notable example is luxury conglomerate LVMH. Given the ongoing political uncertainty in France, we are maintaining a highly selective approach to French exposure in our portfolios.
Source: Goldman Sachs Global Investment Research, Bloomberg. Data as of September 30, 2025.
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