Stress in private credit

The private credit market is under mounting strain, with multiple indicators of stress emerging. A private credit fund managed by KKR reported a sharp rise in troubled loans, a drop in investment income, and markdowns across sectors from software to services, leading to a ~15% decline in its share price. Meanwhile, MFS, a UK-based lender, announced it was shutting down due to allegations of fraud in its portfolio. Several banks in the US reportedly have exposure, including Wells Fargo and Jefferies. This helped revive the narrative that stress in the private credit markets may be broader than originally anticipated. There’s also increased scrutiny on accounting practices in some BDCs, where liabilities may appear understated, fueling investor wariness about leverage and liquidity.

• Private credit, which has been around for a long time, exploded in size since the global financial crisis
• As banks became more constrained by regulators in their lending, companies moved to other sources of capital
• Private credit grew to an estimated size of ~$1.5 trillion, rivaling the size of the High Yield bond market (also known as junk bonds)
• The general idea is that instead of going to a bank, which would underwrite debt for a company and then syndicate it to institutional investors, companies could now go directly to private credit investors who have committed pools of capital from institutional investors
• As the market grew at an exponential rate, the pressure to put the capital to work naturally led to lower lending standards at some firms
• This is why we have seen and will continue to see defaults and losses
• However, unlike the financial crisis, this does not appear to be a systemic risk, particularly if the economy remains buoyant

NVIDIA (NVDA) smashes earnings, but stock sells off

NVIDIA reported strong Q4 fiscal results, with record revenue of $68.1 billion (up 73% YoY) and Data Center revenue of $62.3 billion exceeding expectations, alongside robust margins and optimistic guidance. Despite this fundamental beat and a strong outlook, the stock fell sharply, around 5.5% on Feb. 26, 2026, wiping out roughly $260 billion in market cap, marking its largest one-day loss since April 2025. The broader market reaction was mixed, dragging major indices lower as investors questioned valuation, competitive dynamics, and appetite for high-cap-ex in tech. Commentary suggests the selloff reflects lingering skepticism around the sustainability of growth, even as analysts remain bullish on long-term prospects.

• NVIDIA’s earnings show the continued insatiable demand for the chips that power AI
• It is notable, however, that despite the company beating expectations, the stock sold off
• This suggests sentiment is very negative in the technology sector
• Thus far in 2026, the market seems to prefer more value-oriented companies over growth, which can continue for some time
• Regardless of the short-term stock performance, Nvidia is still a ~$4.5 trillion dollar company growing at 73% annually!
• With OpenAI announcing a $110bn fundraise (partially from NVIDIA), the demand is not likely to slow down

10-Year treasury yield below 4%

The U.S. 10-year Treasury yield has recently slipped below the 4% threshold, reaching its lowest in roughly three months, as demand for duration picked up amid a cautious risk backdrop. This move helped push longer-term mortgage rates, such as the 30-year fixed, below 6%, a level not seen in over three years, as investors sought safe-haven assets. The rally in Treasuries appears driven by a blend of macro uncertainty, softened inflation expectations, and shifts in market sentiment around growth and AI-related dislocations in sectors such as tech and private credit.

• Trading through 4% is a psychological level for the important benchmark bond
• The flows to US treasuries seem to be indicative of market worry about an imminent attack on Iran
• It coincides with a “risk-off” moment in technology stocks and credit-related investments
• This is a welcome move for consumer credit, most notably the aforementioned mortgage rate
• Given inflation is still seemingly sticky, there are limits to how much lower yields can go

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