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From Strength to Stress: A Look at Credit Market Segments

Corporate credit markets represent a vital component of the global financial system, providing businesses with
essential capital for operations, growth, and strategic initiatives. These markets can, in general, be segmented into
four distinct categories: investment-grade bonds, high-yield bonds, bank loans, and private credit. The high yield,
bank loan, and private credit markets can be grouped together, commonly referred to as leveraged credit markets.
Each segment serves different borrower needs and offers investors varying risk-return profiles.

Investment-grade corporate bonds represent the highest-quality segment of public debt markets, with over $7
trillion outstanding in the United States alone. These securities are issued by companies with strong balance sheets
and stable cash flows, earning credit ratings of BBB- or higher from agencies like Standard & Poor’s and Moody’s.
Investment-grade issuers typically include established multinational corporations with proven track records.

High-yield bonds, often called “junk bonds,” occupy the riskier end of the public credit spectrum with a U.S. market
size of approximately $1.5 trillion. Issued by companies rated BB+ or below, these securities compensate investors
for elevated default risk with higher interest rates. High yield issuers may include younger companies, businesses
undergoing restructuring, or firms operating in cyclical industries. While these bonds carry greater credit risk, they
offer investors enhanced returns and portfolio diversification opportunities.

Bank loans, also known as leveraged loans or syndicated loans, represent approximately $1.4 trillion in outstanding
value. These floating-rate instruments are typically arranged by banks and syndicated to institutional investors.
Bank loans hold senior positions in a company’s capital structure, providing greater protection through collateral
and covenant packages. Their floating-rate nature offers investors risk mitigation against rising interest rates,
distinguishing them from fixed-rate bonds. Borrowers often include private equity-backed companies and firms with
below-investment-grade credit profiles.