The Dynamics of Credit Cycles

A credit cycle, akin to a market cycle, encompasses the periods of credit expansion and contraction influenced by various economic factors. It is characterized by events that are often unpredictable, such as the COVID-19 pandemic or the financial crisis of 2008, where market participants fail to foresee the catalyst for downturns. Richard Byrne emphasizes that the current credit cycle is heavily impacted by rising interest rates leading to declines in asset valuations, particularly in commercial real estate. This situation is exacerbated by a significant portion of commercial real estate loans, especially in the office sector, which are under pressure due to increased costs and lower rents, highlighting the complexity of navigating this credit landscape.