Despite growing concerns about the trajectory of the economy, credit fundamentals have remained mostly supportive. Market technicals, on the other hand, have weakened markedly.

At current prices, the loan market appears to be pricing in a mild recession but not a “hard landing.” Given considerable volatility, this could change rapidly—for better or worse.

The rapid increase in rates at the short end of the yield curve and generally wider spreads for higher-quality credits gives institutional investors a greater range of investment options and has been a headwind for the formation of collateralized loan obligations.