FICC Focus Credit Crunch: Leveraged Loan, Private Credit, CLO Outlook 2026
Jan 19, 2026
In this discussion, Paul Mehta, Head of Leveraged Credit at Aberdeen Investments, shares his expertise on the evolving landscape of leveraged loans and private credit. He highlights how private credit is providing new financing alternatives, alongside the significant role of CLOs in the market. Paul discusses projections for loan returns in 2026, comparing them to high-yield bonds, and delves into the implications of private credit on public market defaults. Listeners can gain insights into market dynamics and investment opportunities ahead.
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Loans Are Uniquely Cheap
- Loans are the only major credit asset class currently in cheap territory versus richly priced bonds and IG.
- This makes leveraged loans a rare area with visible potential for carry and mild spread compression in 2026.
Position For ~5% Loan Returns
- Expect leveraged loans to deliver around 5% total returns in Europe in 2026, driven by floating-rate income and potential spread tightening.
- Position for carry in loans even if spread compression is limited, because floating‑rate benefits from a steady ECB rate outlook.
Single‑B Loan–Bond Gap Likely To Tighten
- The single-B loan–single-B bond gap remains wide at roughly 80–100bps and should compress.
- CLO demand and investor flows into loans will support that tightening in 2026.