Navigating credit markets in 2026: “Don’t let the macro narrative overwhelm the micro”

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Brian LaRocca: Welcome to another episode of J.P. Morgan's Making Sense. I'm Brian LaRocca, head of our Vida portfolio solutions team in North America. Today I'm joined by Ben Kinney, our head of credit sales. Now, Ben, you were previously co-head of rate sales, and I'd argue that background has never been more relevant than it is right now in the credit markets. Welcome.

Benjamin Kinney: Thanks, Brian. It's been a very fun transition over the course of the year, to looking after our credit sales organization. It's been a timely move for me, and I think an interesting time in the market, as there are a number of different ways two markets are converging.

Brian LaRocca: Yeah, it's a very interesting time in the market. As we sit here in early September, treasury yields are elevated, credit spreads are historically tight, and it feels like the rates market is bleeding directly into credit. A lot of credit investors grew up in a world of zero rates. So what's your advice to them as they adapt to this higher for longer environment?

Benjamin Kinney: Yeah. I think one of the differences that we have now as we sit here in late 2026 versus for really the whole history of the credit market, is you have much more continuous price discovery in the credit markets. And I say that with very large asterisks, but if you think about the amount of portfolio turnover that happens on a daily, weekly, monthly basis, that leads to dynamics you didn't have historically, right? So if you look at the turnover in the investment grade bond market and the first half of 2026, that reached an 18-year peak. And in the high yield markets, while you're still talking about relatively small numbers, right, less than 1% of the high yield market turns over every day, that's the highest since 2020. If you look at, take it a step further, if you look at the number of QSIPs that trade, and this is I think an important stat, the percentage of QSIPs that trade or don't trade on a weekly basis has collapsed to almost zero, right?

So every single week, just shy of 99%, so 98.7% of IG QSIPs will exchange hands. Not the notional amount, but you'll have some price discovery on 99% of the IG universe. And that number in high yield is north of 97%. That was 95% just last year. So you're talking about while you don't have continuous price formation, and oftentimes these are small trades, your ability, and I think this is an important change, your ability to have a good idea as to where risk is exchanging hands looks much more like the rates market or the equity market than the credit markets that I think most of us grew up in, or most people grew up in, in a lower rate environment.

Brian LaRocca: Duration's a really interesting topic. In just the last few months, we've seen the new Fed chair Kevin Warsh scrap the Fed's forward guidance and their dot plot frameworks. And at the same time, Treasury Secretary Scott Bessent is intervening directly in the treasury markets to push yields lower, therefore changing investors' expectations of duration. We also have, obviously, the continuance of large federal deficits. How are you unpacking this macroeconomic uncertainty for clients?

Benjamin Kinney: It is a very difficult moment, to be clear. Having grown up in the rates markets, we've certainly had times where fiscal policy and monetary policy are rowing in the same direction. There have been long periods where they've been rowing in opposite directions, where I think it's, you read the press and you hear Bessent described as an activist treasury secretary. And I think that right now, unfortunately, we saw this last week where Warsh was a bit more transparent around how he's thinking about a number of things than maybe he was the very, you know, we're still early on in his tenure, but at the very beginning of his tenure. And I think that one thing that will help is understanding how the different policymakers are ideally working together, or if they're not, some clarity around how they're thinking about things. One thing that does strike me is that I spent most of my career in rates, certainly, and I looked after our broader macro businesses for a couple of years before moving over to credit.

This, and I don't think I'm alone in this view, but it strikes me that the clearer expression of this policy uncertainty or policy divergences, it's really an FX trade, and I think expressing the view on the dollar is a better way to trade this than trading either long duration assets or even the front end of the rates curve, because there is so much noise in policymaking right now. So like I said, it's better to express the view with FX than it is with rates. Although, gun to my head, I do think that, I don't want to say it's a drop in the bucket what Treasury's doing. There's certainly very strong signal value. It does strike me that the market can push the curve a lot steeper as we focus on fiscal issues.

Brian LaRocca: Given that macro background, I'd like to take a step back and just, what are some of the market structure and processes you are accustomed to on the rate side, that you think credit should adopt?

Benjamin Kinney: Sure. And this is one thing where, you know, while I've, I joke, I'm just learning what triple B means and how CLO is formed, sort of self-deprecatingly, one thing I experienced and lived in real time is the modernization and electronification of macro markets. Certainly FX is going through that for, has been going through that journey for 20 years, give or take, and it's a very mature process. I lived through that process in the rates market coming out of the GFC, where it went from just a, a market where we trade treasuries electronically to now we trade all G10 rate product or the vast majority of G10 rate product through electronic channels. And I think that credit is at a different stage in that journey. In many ways, I think that it's an advantage position because in credit, we're able to learn, take some of the lessons that were learned in FX and rates and apply them here.

I think that there's a lot that we can take away from the early stages of those, those process. And to be clear, to use an American sports analogy, I think we're probably in the third or fourth inning of the game in the FX market. Like I said, it's very mature. It's not the ninth inning of the game, but it's close to the end as most parts of that ecosystem have electronified and rates is much further along than we are in credit. But I also think there are different problem statements that we face in the electronification of the credit market than what we though about in rates or FX. It's the portfolio trading business that's come about fairly quickly, I'd argue, and has matured fairly quickly in the last couple of years. That's something that we talked about in rates, but it never took off in the same way that it has in credit.

It's never become as an important part of an ecosystem. And how you think about executing a large portfolio trade in IG or high yield presents different challenges than even just trading a portfolio of US Treasury bonds. So, like I said, you can learn a lot about how to build the pipes, how to connect, how to build things like algos for our clients, things that we're very focused on. But I also think that as we go through this journey in credit, the middle part of the game will probably look different than the middle part of the game did in, in FX or rates.

Brian LaRocca: We in Vida Portfolio Solutions like to think we're part of a solution. So our application Beta one was built to facilitate portfolio trading in the fixed income markets. Clients could come in and price and analyze their own portfolio or use our optimization tools to trade or replicate a portfolio. Two advantages of using Beta one is the fact that they can see J.P. Morgan's own balance sheet and access to see how good of a fit we are, and they can do so in a private sandbox. And we're very excited to be adding an execution feature to the client journey. So there'll be an end-to-end processing of pricing, execution, and post-trade analytics. Now, I mentioned earlier that credit spreads are tight, but they've actually widened recently, given the roughly $300 billion in data center build out related issuance. IG issuance overall is up about 50% year over year.

Analysts are forecasting significantly more projects to be green lit. Is the market reassessing its overall risk appetite, or do you think just some momentary indigestion as we acclimate to these new financing structures?

Benjamin Kinney: So before I answer your question, Brian, I'm going to say I'm glad you're in sales working with me on Vida because you gave the 30-second elevator pitch on why it's a great platform very succinctly. I do agree that we're leading in that space, and I'm certainly excited to be part of that journey with our Vida team. I hear consistently from clients what a differentiated product it is. And as we look ahead and build the execution rails, embed the execution rails in a more deep way into the product, I think it will differentiate itself even further, and our clients are going to find that incredibly useful part of their workflow. Now, on the data center narrative, this story, again, to bring the baseball analogy back in, if we're in the third inning of the electronification of markets, we're barely ending the first inning of the funding for the AI infrastructure that we need to fund in the U.S. and really globally.

And I think what's interesting is that when you travel around the globe, you talk to investors and they're thinking about the problem statement or how to solve the problem statement in different ways in different regions. But if we focus on how it's being solved in the dollar IG market or even the Euro and Sterling markets, I think that we're at a moment right now, and again, we're in early September, we've come out of this period where we did widen spreads this summer, and I think it's important to remember that spreads had a big move at a time when issuance was coming fast and furiously, but there were also some challenges in the equity markets and some positions that were maybe a bit over their skis, and you saw some large losses that were taken as levered positions got unwound.

So I think it's important to recognize there was probably some noise in the widening in spreads that we saw in the middle of the summer. I don't think we can entirely attribute that to indigestion in the credit markets. But as we go forward, I think that folks are spending a lot of time thinking about pacing of issuance. I think there's a growing recognition that how these fit into portfolios and concentration risk is something that people are concerned about. To be clear, our research has done a lot of work on this, and we're not concerned that we're anywhere close to concentration limits in portfolios yet. But I think the underlying word in that sentence or the key word in that sentence is yet, and over time, that's a risk that we need to likely manage through. And knowing that that's out there is one of the reasons I think spreads can continue to be volatile, in that the buyers of this debt are, I don't want to say in the driver's seat, but on a deal-by-deal basis, I think we're not necessarily going to have this smooth ride through the next round of supply.

The next round, by the way, I don't define as September or September and October. I think it's sort of the next six to nine months. I think that folks are going to be, continue to be focused on structure, continue to be focused on asset quality, continue to think about where underlying risks are. Those concentration limits are not something that will be hitting us in the next six months. That's not something that stresses me or stresses our trading or research teams. It's much more about the form the debt's coming, can the market really digest so much long duration supply? And is the buyer base going to be there in rainy days and sunny days? Is the buyer base going to be there when there was a deal that was brought 24 hours prior? And my intuition is that, again, if you think about the last 25 years, most of my career, these assets that I think fit very well into LDI portfolios that were starved of this risk for a long time, I think they will continue to have strong demand.

And I think that you will see, like I said, some volatility, but these assets will find homes, and I think that these spread levels for many are very, very attractive. While I think that this is a debatable comment, I think many feel like these assets are attractive assets from a credit quality perspective, it's really just a function of finding the clearing price. And I guess I'd give one last anecdote bringing my rates background here a little bit. For most of my career, we would wait with bated breath around refunding announcements for the size of treasury issuance and what TBAC would be telling us or advising treasury for, you know, issuance forecast for, say, four or eight quarters out and living through a period of many years where if the treasury was going to be revising their issuance forecast by a billion bonds a month or five billion bonds over the course of a quarter and extrapolating that out, we could move swap spreads very easily to three, five basis points when treasury issuance would change by, call it 20 billion a year.

We've been revising our data center forecasts and the market's been revising expectations of data center issuance in trillion dollar increments. So to, to see markets not understand where the clearing price is, I think actually should be fairly natural. I don't think we should be surprised by this. So until we really, I think, feel much more comfortable as to what the ultimate amount of issuance that we need to digest is, my guess is that the volatility remains.

Brian LaRocca: So, as you're saying, infrastructure more broadly has been a key focus for you since joining. Now, private credit underwriting standards came up under heavy screening earlier in the year, but it seems like the industry has pivoted away from the SaaS recurring revenue underwriting model towards something more focused on hard assets. How is J.P. Morgan positioning itself for clients in this space?

Benjamin Kinney: You are right. The first thing that I kind of had to dig into was the SaaS story and SaaSPocalypse and the challenges in how the market was thinking about risk and private credit. I don't think that narrative has entirely gone away. I think that what happened was the market became relatively comfortable with the amount of leverage in the system around that narrative. Even just in the last 24 hours, we've seen that private credit gates are still up and that folks can't get their redemptions, all of their redemptions in a quarterly basis. Remember, this is a feature of the private credit market, not the bug. And that's something that I spent a lot of time, like I said in the first couple months in my new role focused on. And I think that while you don't know exactly how the software narrative is going to play out, it will just take a long time.

And so the repricing of the market, which is largely intact, we're not seeing folks deploy significant capital into the software space right now. I do think that there's a growing comfort with the fact that this will, is not a systemic problem, and that you probably will have endgame winners and losers. But even if you have widespread faults or challenges with refis that, that wall in 2028 and 2029 is not inconsequential, it's something that the market can work through. And in fact, you've already seen, not at large scale, but you have seen the beginnings of that refi wave work its way through the system for business models that are perceived to have enduring strength. So I think that's a positive. But you're right, we did transition from a Q1 focus on private credit and BDCs to this, this narrative around the AI infrastructure trade, which I just think it's a much bigger notional problem for the market to digest over time and that's why we're spending more time there now.

Brian LaRocca: So certainly a large part of financing is going through back leverage channels, similar to what we saw in the ABL business. And a huge client solution we've developed under the Vida umbrella is Financing Connect. Financing Connect is an application that allows clients to understand all the different data points inherent in their ABL from all the underlying collateral, as well as all of the different concentration rules that make up a, a credit agreement. We've also layered in workflow tools, so clients who come in and seamlessly draw or pay down, add assets to the vehicle, as well as run different scenario analysis. So prospectively, they can actually see how new collateral they're originating will impact their back leverage.

Benjamin Kinney: Yeah, no. And Brian, I think, I promise, I mean, I'm a salesperson, but I think one of the things that I learned a long time ago is to be honest about where we're good and where we're not good. This is something that when I first sat down in the new role, I had demoed to me and I could see the value immediately. Now, it was at a time when there were some challenges in the financing markets and we were seeing some portfolios shift around. I think this is one of the more differentiated products that we have, and the growth of our financing book within the credit organization over the last few years has been driven by, I think, the ability to be as nimble as possible to offer clients something very differentiated. And I hear time and again that our, our financing clients love the fact they can pull up their portfolio, they can click through very, very quickly.

It is a workflow tool, they can pay down, they can draw down. It's a really exceptional tool that you guys have built. I'll tell you, I don't think our financing business would be where it is and is going to end up in the place where it will go without this product and the continued evolution of this product.

Brian LaRocca: Thank you for that. The headline story in credit is that everything's fine. There's tight spreads, there's low defaults, there's strong fundamentals, but we both know that there's pockets of instability. So where should people be looking for that?

Benjamin Kinney: So as a macro person for most of my career, I always start or historically have started top down. I think you're right, at a high level, things look great, and I think you can argue that the global economy is in pretty good shape. The U.S. economy feels very strong, large parts of Asia feel very strong. I think Europe is maybe a little bit more debatable, but Europe's been more debatable for most of the last five or six years. I think though that when you are a bottoms-up person, like most people are in credit, you can see more gaps. And I certainly think that we talked a little bit about the loan market earlier and uncertainty around what's going to happen with software. While that may be an old story, and I think largely in the price, there's still uncertainty, and there are very large air bands around what will happen with the software loan market.

If you look in the distress market, I mean, our distress business has had a very active year, and you're starting to see the percentage of the high yield markets trading at distressed levels, that's slowly taking up. Now, if you look at default rates on a month-by-month basis, in June and July, defaults were exceptionally low levels, so I think that's a great sign. I do wonder, think about this in a big way for our Lev Fin business, how will workouts take place over the next couple of years? Will there be exhaustion with co-ops? Will you start to see different processes to work through some of the challenges? And then globally, how will you manage through some of these narratives in these new shifts? Certainly, how we're seeing capital formation in large parts of Asia, particularly China, I think is a question mark in how investors are going to continue to digest the risk being created out of China.

And I think that's actually something in North America we have a bit of an underappreciation for. Certainly, there have been some headlines recently around how that China and our research team put up a really thoughtful note recently, around how the AI ecosystem's going to be funded in China and how that will be different from, or likely be different from the rest of the world. But that throws off a very different risk profile that investors may or may not be comfortable ingesting. I'll tell you, when I travel to Asia, I hear a very different story about the level of risk appetite that investors have for investing in China versus what most investors hear in the U.S.

So I think while you will certainly over the next three or four years have different credit profiles that you have to work through, I think one of the first order questions, and this is speaking again as a macro person, is that capital formation is taking place in different ways outside of the U.S. than inside of the U.S., and I'm not sure we fully understand how that can lead to stress over the next couple of years.

Brian LaRocca: So there's been a lot of talk about the equitification of the credit markets, but maybe we could coin a term the racification of the credit markets. While analysts are still doing a bottoms-up fundamental obligor analysis, investors are viewing credit through more of a rates lens. Credit technology is moving more towards automation, and there's a focus on key macro themes. But do you want to chime in, Ben, just on the heels of that?

Benjamin Kinney: Sure. No, I, listen, I think you're right. We go through periods in markets where different drivers dominate. It feels like rates are an important driver right now, but I guess I wouldn't let the macro narrative fully overwhelm the micro here. We are still a micro market and credit analysis is incredibly important.

Brian LaRocca: Thank you for your time today, Ben. If any of our listeners would like to learn more about Vida Portfolio Solutions, there's a link in the show notes attached to this podcast.

Benjamin Kinney: Thanks, Brian. It's been a lot of fun.

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