The 4Sight Weekly Report

Credit Rotation and the Calm Behind the Curve

Markets continue to show resilience on the surface, but beneath the calm lies a notable shift in credit behavior. From funding costs to loan structures, risk is being repriced, not removed. This week's 4Sight explores why investors are rebalancing toward structured, floating-rate deals — and how recent inflation data plays into future rate decisions.

Macro Brief

• Headline CPI for June fell to 3.0%, its lowest since March, suggesting disinflation momentum. Core CPI declined to 3.3%. (BLS, July 11)
• FOMC minutes emphasized persistent service inflation and “no urgency” to cut rates, though labor data has softened modestly. (FOMC, July 10)
• University of Michigan’s consumer sentiment index fell to 65.6, its lowest in 5 months — reflecting household concern over sticky prices. (UMich, July 12)

Private Credit Update

• Q2 CLO issuance for private credit reached $8.7B, up 42% YoY — driven by tighter spreads and more investor comfort with underwriting discipline. (LCD, July 9)
• Fitch noted a slowdown in new business loan originations across regional banks, citing compliance drag and capital allocation changes. (Fitch, July 12)
• New institutional mandates are increasing allocations to niche verticals such as health care and legal receivables. (Preqin, July 13)

What It Means for You

• Investors are leaning into short-duration, floating-rate strategies that preserve optionality amid macro uncertainty
• The search for high-integrity underwriting is accelerating — especially in fragmented borrower categories
• Risk spreads remain elevated, but investor sentiment is improving where repayment visibility and sponsor alignment are clear

Chart of the Week

Private Credit CLO Issuance ($B, Quarterly)

Source: LCD, July 2025

Quote of the Week

"Credit spreads aren't wide — underwriting discipline is rare. That's the new premium." — Managing Partner, $2B Credit Fund (July 12)

Sources

BLS, FOMC, University of Michigan, LCD, Fitch Ratings, Preqin