Private credit yield premium hits a four-year high

Private credit has traditionally offered a yield premium over public credit markets. It has widened meaningfully today. Spreads tell a similar story.

Yields: Private vs. public credit

Investors have long turned to private credit, seeking the yield premium it has traditionally offered over public credit markets. Outside of a short period in 2022, when public credit spreads widened meaningfully, private credit has featured a notable yield premium which sits at a three-year high today.

As the chart shows, private credit features an attractive double-digit yield (10.15%) with a yield premium of 226bps over B-rated loans (the closest public market comparison).[1] Private credit’s yield premium today is nearly double its average of 121bps since January 2021.[1]

Credit spreads tell a similar story. While high yield bond spreads sit near their post-Global Financial Crisis lows, and senior secured loan spreads are only moderately wider, spreads for traditional sponsor-backed private credit strategies and non-sponsored transactions are between 115bps to 280bps higher than syndicated loans.[2]

These attractive yield and spread dynamics come at a time when optimism among U.S. middle market leaders is near a record high. Private credit of course is not immune from macro risks and uncertainties but may represent an attractive source of income and diversification potential today.

Catch up on chart of the week.

[1] KBRA DLD, as of January 31, 2025. Upper middle market private credit refers to companies with earnings before interest taxes, depreciation and amortization (EBITDA) of 100 million or more.

[2] High yield bonds represented by the ICE BofAML U.S. High Yield Index. Senior secured loans represented by the Morningstar/S&P Leveraged Loan Index. Data as of December 31, 2024, latest available. One cannot invest directly in an index. Past performance is not indicative of future results.

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