Marathon's senior market strategist Richards highlighted sustained demand in leveraged loan markets despite elevated Treasury yields and heightened volatility, noting strong investor appetite for high-yield debt across energy and defense sectors. The commentary comes as credit spreads remain tight and issuance volumes remain stable.
- Leveraged loan volumes reached $218 billion in Q4 2025, up 7% YoY
- Energy sector accounted for 43% of total high-yield issuance
- BBB-rated credit spreads tightened by 5 bps in February 2026
- Defense sector credit facilities totaled $47 billion in 2025, +22% YoY
- Median EBITDA-to-debt ratio in new energy deals: 3.4x
- CBOE Volatility Index (VIX) peaked at 26.8 in February 2026
Marathon's Richards delivered a cautious yet optimistic assessment of credit market conditions during a closed-door investor forum, emphasizing that high-yield issuance in the energy and defense sectors has held firm despite a 120-basis-point rise in the 10-year Treasury yield since late 2024. The firm’s internal data shows that leveraged loan volumes in Q4 2025 reached $218 billion, up 7% year-over-year, with energy-related deals accounting for 43% of total issuance. This reflects continued confidence in asset-backed borrowing, particularly among midstream and exploration & production firms. Despite a spike in the CBOE Volatility Index (VIX) to 26.8 in early February—its highest level since mid-2023—credit spreads for BBB-rated corporate debt have tightened by 5 basis points over the past month. Richards attributed this resilience to disciplined underwriting standards and strong cash flow coverage among borrowers, with median EBITDA-to-debt ratios in new energy deals reaching 3.4x. In defense, a sector experiencing increased capital allocation, new credit facilities totaled $47 billion in 2025, representing a 22% increase from the prior year. The commentary underscores a divergence in market sentiment: while equities such as AAPL have seen a 9% pullback in Q1 2026 amid rate uncertainty, credit markets continue to price in orderly refinancing and stable default expectations. The Brent crude futures contract (CL=F) has remained within a $75–$82 range, supporting confidence in energy sector cash flows and underpinning debt capacity. Investors are increasingly reallocating from rate-sensitive equities into credit instruments with duration under 3 years. Market participants are now closely monitoring the Federal Reserve’s upcoming policy meeting, with expectations of a potential pause in rate hikes. Should the 10-year yield stabilize below 4.8%, credit spreads could further compress, especially in cyclical sectors like energy and defense. Conversely, any acceleration in inflation readings may reignite volatility and pressure higher-yield issuance.