Private credit bonds signal stress before redemptions
Private credit bonds hit one-year lows as investors anticipated liquidity stress. Fourier says widening spreads signaled risks before recent redemption caps.
Bonds issued by semi-liquid private credit funds have experienced a sharp decline in value since early February, reaching their weakest levels in a year. According to the bond trading hedge fund Fourier Asset Management, this downward trend suggests that investors were bracing for sector-wide stress well before the recent surge in redemptions.
The private credit market is currently navigating significant volatility as major banks in the United States tighten lending standards. Simultaneously, several funds have implemented caps on withdrawals due to mounting concerns regarding asset valuations, transparency, and the health of the overall economy.
The $2 trillion semi-liquid private credit market is navigating its most significant liquidity stress test since inception.
Fourier Asset Management noted that yield spreads for bonds issued by five major interval funds—including those managed by Oaktree, BlackRock, Inc., Blue Owl Capital Inc., Blackstone Inc., and Ares Capital Corporation—began to widen significantly in early February. This widening often serves as a primary indicator of perceived risk among investors. All five companies declined to comment on the matter.
The analysis indicates that stress in semi-liquid fund structures is often reflected in, or even preceded by, signals from public bond markets. For instance, the Oaktree Strategic Credit Fund saw its credit bond spreads widen to approximately 250 basis points, near the highest levels since April 2025, according to data from Barclays and S&P Global Market Intelligence. Oaktree is expected to face elevated redemption pressure heading into its next quarterly earnings report at the end of April.
Similarly, BlackRock’s HPS Corporate Lending Fund, which holds credit ratings from S&P and Moody’s, saw its bond spreads reach as high as 258 basis points in March. In comparison, the ICE BofA U.S. Corporate Index closed at 121 basis points recently, while the ICE U.S. High Yield Index stood at 308 basis points.
The stress in semi-liquid fund structures is corroborated - and in some cases preceded - by signals in the public bond markets.
Interval funds and non-traded Business Development Companies (BDCs) provide specific windows for investor redemptions. However, when withdrawal requests spike, fund managers may restrict or delay payouts to protect the remaining share value from sharp declines. The recent widening of spreads is viewed by market analysts as a clear signal of increasing investor anxiety regarding the private credit landscape.
