Back to school: Credit’s September report card, and Q4 starts with a bang.
September saw government bond yields hit levels last reached in the early 2000s, some of the largest debt financings the market has ever been asked to absorb and the first real repricing of hyperscaler debt.
By Janaka Ariyasena*
Q3 macro highlights: the Summer of 5%
Q3 was defined by a relentless rise in developed market government bond yields. The Bloomberg Global Aggregate Index fell 2.1%, its worst quarter since late 2024. The US 10yr rose 87bp in Q3, the largest quarterly increase since 1994, and the Fed under Chair Warsh hiked in September for the first time since 2023. In the face of all of this, JPMorgan data showed that September saw the largest rotation into long-end Treasury ETFs on record, led by TLT, with US fixed income ETFs taking in $42.4bn, slightly more than equity ETFs.
Outside of the US, the UK 30yr gilt touched 6% for the first time since 1998, and the DMO sold 2056s at 5.82%, the highest yield on any syndication since it was created. Japan’s 10yr reached its highest since 1996 after a 42bp quarterly rise, its biggest in more than 20 years, and Germany paid its highest 10yr borrowing cost since 2009. France’s move was more idiosyncratic. Domestic political risk and debt concerns pushed the 10yr OAT yield to 4.99%, the highest since 2002, and the OAT/Bund spread to 146bp, the widest since the euro-area debt crisis.
There has historically been a connection between persistent, heightened rate volatility and credit spreads, and this manifested itself in September. ICE BofA US IG OAS widened from 77bp on 23 September to 86bp on 1 October, and BBBs from 95bp to 106bp. The bigger story is dispersion: heavy AI and hyperscaler supply has taken tech from around 10bp inside the IG index a year ago to around 15bp wide. With the index yielding around 6% (BBBs around 6.2%), all-in yields are worthy of attention. Lower down, US CCC spreads moved above 1,000bp for the first time since the 2023 regional banking crisis. The weakness in spreads was not just limited to bonds; JP Morgan stated that US loans trading below 60 reached $65bn in early October, the highest since March 2020, with technology accounting for 39% as software borrowers struggle to refinance.
Primary highlights: open for business, at a price
The post-Labor Day reopening showed the market can absorb almost anything. The catch is the coupon.
In Europe, US corporates led the way. Amazon priced its debut sterling bond and Uber a five-part debut in euros, taking US issuance in European currencies close to 2025’s €128.6bn record. European HY set its own record on 16 September, with €4.53bn priced in a single day, the busiest of 2026. Higher rates have not been kind to recent deals, though: for example Iceland Supermarkets’ bond issued this Summer is already indicated 1 to 2pts below reoffer.
In the US, mega deals dominated culminating in the busiest month of the year for issuance in September. Deals were led by Paramount Skydance’s (PSKY) $52bn acquisition financing and SoftBank’s $11bn junk bond deal. Both paid up to print size. PSKY’s HY tranches came 120 to 190bp wide of the BB index and still traded down as the market struggled to digest the supply. The wider pricing was not limited to TMT names, Cruiseliner NCL priced an upsized $950m of 8.75% 2031s, almost 290bp more than the 5.875% it paid for the same maturity a year earlier, despite having an improved credit rating.
The less discussed story is around borrowers who downsized or did not come to market. McGraw-Hill cut its HY deal from $500m to $400m and priced at 8%. While around $6bn of municipal refinancings, including New Jersey, Philadelphia and New York’s MTA, are on hold as higher yields wipe out the savings. In EM, Brazil’s MBRF Global Foods paused and Uzbek gold miner Multinational Mine Group shelved a five-year note. Apollo now looks set to fund its easyJet acquisition in the securitised aircraft funding market rather than HY, where it said terms are better.
Notable secondary activity in IG
The Hyperscaler sector is seeing cheapening and its not limited to idiosyncratic situations like Oracle. Meta’s Hyperion data centre funded through the $27.3bn Beignet Investor 6.581% 2049s, rated A+ traded around 91 at month-end, nearly 10pts below issue and roughly 230bp over Treasuries against 185bp at launch. Meta owns only 20% of the JV, so the debt sits off its balance sheet, as does an estimated $3tn of similar structures across the sector according to Morgan Stanley. Investors want more premium for supply, rates volatility and delivery risk: Oracle’s force majeure notice at its New Mexico data centre has amplified nervousness about AI exposure, and certain new CLO investors have implemented caps on AI exposure.
In Europe, Corporate hybrids and bank capital have both cheapened. French bank CDS has widened since August, with Société Générale 5yr CDS widening 40bp to over 100bp, dragging AT1s lower. Niche German AT1s such as LBBW have weakened on property exposure, and several European real estate hybrids now yield high single to double digits.
HY and distressed: big structures, big moves
September and early October brought large moves in some of European HY’s biggest capital structures.
Virgin Media O2 (VMED): Bonds fell to record lows, some in the low 40s, after the CMA raised concerns over the Nexfibre/Netomnia combination. That puts at risk a key part of the deleveraging plan, including around £950m of expected net cash, for a group carrying around £22.5bn of debt across currencies. The curve has been one of the most active in HY over the past month. In a related development, UK challenger TalkTalk was bought out of administration by BT in a debt-free deal that left little for bondholders. Its 1L bonds fell to low single digits, having been quoted in the 60s only months ago.
Merlin Entertainments (MERLLN): At the owner of Legoland and the London Eye, the refinancing split the capital structure. The 2027 bonds were taken out at par with a new loan secured on better collateral than the longer-dated bonds. The euro 2030s rallied to around 80 on the announcement, then fell into the high 60s as holders worked through the collateral maths.
Credit trading and innovation
Credit trading innovation marched forward across both public and private credit.
Tradeweb upgraded its Ai-Price engine, combining TRACE with proprietary data and improved machine learning models to produce more responsive real-time bid/offer estimates for US IG and HY, feeding directly into execution and its AiEX automated trading. Apollo is extending daily pricing across its roughly $850bn private credit platform, with asset-level marks for applicable funds from 30 October. That moves private credit from quarterly manager marks towards something closer to public-market price discovery. The timing of the announcement coincided with the announcement on 28 September, where the SEC reminded funds and auditors of the rigour required in valuing private assets, explicitly including private credit. A number of hedge funds and asset managers announced partnerships with LLM providers such as Anthropic and OpenAI across the front and middle office, and vendors are following.
Propellant Digital launched an MCP server that lets desks query its real-time and historical fixed income analytics through Claude in plain English, rather than through dashboards, while S&P Global reported rapid adoption of its own MCP-enabled solutions, with over 500 clients and a fivefold quarter-on-quarter increase in AI data usage.
Looking ahead
The known events into year-end are Q3 earnings season, the UK Budget on 28 October, the US midterms in November and the possibility of further Fed and ECB hikes. The bond market looks set to keep everyone on their toes well into year-end.
Disclaimer: This is not investment advice and the author is writing this in his own personal capacity and this does not necessarily represent the view of the publisher.
*Janaka Ariyasena is a credit markets professional with 15 years of buyside and sellside experience across high yield, distressed, investment grade and financials.
Sources used: Bloomberg, Reuters, WSJ, X, Company filings.
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