Credit assets rebounded in the fourth quarter as improving inflation data sparked hopes that the end of the Fed’s rate-hike cycle may be near.

While leveraged loan market fundamentals have remained relatively resilient in the face of input cost pressures, a higher cost of capital and slowing economic activity, a rising distress ratio suggests trouble may lie ahead. Market technicals continued to be fairly favorable, as a decline in both the supply of and demand for loans kept the market in relative balance.

All-in yields for direct lending have seen a meaningful increase, driven by higher reference rates and larger original issue discounts.