The comeback of credit
After three years of cautious corporate financing, the world is entering a new era of credit expansion. As interest rates decline and liquidity increases, companies are returning to bond markets and bank loans to fund growth, acquisitions, and innovation.
Global corporate borrowing, which had slowed sharply between 2022 and 2024, is now accelerating again — signaling a potential credit boom that could define 2026.
But this new wave of borrowing differs from past cycles. It’s less about speculation and more about strategic investment in supply chains, green energy, and digital infrastructure.
From debt restraint to credit revival
Between 2022 and 2024, corporations faced a perfect storm: high borrowing costs, volatile inflation, and weak demand. Many deleveraged aggressively, paying down debt and holding record amounts of cash.
Now, conditions are reversing:
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Interest rates are falling, with central banks cutting in unison.
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Inflation has normalized, restoring real borrowing power.
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Liquidity is expanding, as global money supply grows again.
According to the Institute of International Finance (IIF), global corporate debt issuance rose 18% in Q3 2025, led by the U.S., China, and the Eurozone. This marks the first synchronized rebound in corporate credit since 2019.
Why companies are borrowing again
1. Refinancing advantage
Corporations are rushing to refinance existing debt at lower rates. More than $3.2 trillion in global bonds mature in 2026–2027, and refinancing early can lock in cheaper funding before spreads tighten further.
2. Capital expenditure revival
Industrial, tech, and energy firms are reinvesting in new capacity. The global capex cycle, dormant for years, is accelerating again — driven by AI infrastructure, automation, and green energy projects.
3. Mergers and acquisitions
Cheap financing is fueling a rebound in M&A. Deal volumes rose 22% in the third quarter of 2025 compared to the prior year, with a focus on strategic consolidation rather than speculative takeovers.
4. Share buybacks and dividends
Large-cap firms are also returning to shareholder rewards. The return of cheap debt allows management teams to optimize balance sheets and enhance returns without eroding liquidity.
The credit cycle in perspective
Economists define four stages in the corporate credit cycle: expansion, peak, correction, and recovery.
From 2020 through 2023, the cycle was in correction — marked by deleveraging and credit tightening. As of late 2025, it’s clearly in the recovery-to-expansion phase, powered by improved sentiment and easier funding conditions.
Historically, early credit expansions coincide with strong equity performance and moderate inflation. If history rhymes, 2026 could mirror 2004–2006 — a period of healthy growth before excesses set in.
Regional breakdown: where the borrowing boom begins
United States
U.S. corporations are leading the charge, issuing over $850 billion in new bonds this year — up 19% from 2024. The largest issuers include tech giants, industrials, and renewable energy firms.
Bank lending is also improving, with credit growth running at 6.2% annually — double last year’s pace.
Europe
European firms are embracing fixed-rate funding before ECB rate cuts deepen. The corporate bond market, long dominated by financials, is diversifying as manufacturing and utilities join the issuance wave.
Asia-Pacific
In Asia, China’s targeted easing has unleashed record local-currency bond issuance. Indian and Indonesian corporations are tapping global investors seeking higher real yields.
The region’s borrowing is largely investment-driven, with funds channeled into logistics, AI hardware, and clean manufacturing.
Emerging markets
Emerging-market corporate credit is experiencing a renaissance as the U.S. dollar weakens. Local-currency borrowing is increasing, reducing exposure to FX risk and boosting domestic bond markets.
The role of central banks
Monetary authorities are indirectly encouraging the credit revival by rebuilding liquidity buffers and ensuring capital markets remain functional.
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The Federal Reserve is reinvesting a portion of maturing assets, supporting bond demand.
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The ECB has introduced targeted long-term refinancing operations (TLTROs) to spur lending.
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The People’s Bank of China is maintaining ultra-loose credit conditions for infrastructure projects.
Together, these policies ensure that the cost of capital remains attractive — without triggering the inflation risks of past stimulus waves.
The corporate bond market: key trends for 2026
Narrowing spreads
Investment-grade spreads have compressed to 110 basis points over Treasuries, the tightest since 2021. High-yield spreads have also narrowed to 370 basis points, reflecting improving confidence.
Longer maturities
Issuers are extending maturities to 10–15 years to lock in rates, creating more stable funding structures.
ESG-linked bonds
Sustainability-linked and green bonds now account for nearly 25% of new global issuance, as investors demand transparency and accountability.
Investor appetite
Pension funds, insurers, and sovereign wealth funds are re-entering credit markets in size. With real yields positive and volatility low, credit offers a compelling mix of income and stability.
Equities and credit: a reinforcing loop
The credit expansion is feeding equity markets in two ways:
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Lower funding costs boost earnings — particularly for capital-intensive industries.
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Liquidity supports valuations, as investors rotate from cash to risk assets.
Companies that can access cheap debt are using it to buy back shares, fund acquisitions, and increase dividends — all supportive for stock prices.
Sectors leading the rally include financials, industrials, technology infrastructure, and renewable energy — each benefiting from capital investment tailwinds.
Risk factors to watch
Every credit boom carries potential vulnerabilities. The key risks for 2026 include:
1. Over-leverage in non-financial firms
While debt ratios are still moderate, a rapid buildup could strain balance sheets if earnings slow.
2. Credit quality divergence
Smaller, lower-rated issuers face higher refinancing risk, even as investment-grade spreads tighten.
3. Policy missteps
A premature tightening or renewed inflation shock could reverse liquidity gains.
4. Geopolitical risk
Tensions in global supply chains or energy markets could raise borrowing costs unexpectedly.
The key for investors is differentiation — focusing on quality issuers with transparent cash flows and disciplined capital allocation.
How investors can capitalize on the credit revival
1. Diversify fixed income exposure
Blend investment-grade and high-yield bonds across regions to capture yield while managing risk.
2. Favor shorter-to-intermediate duration
In a still-evolving rate environment, 3–10-year maturities offer the best balance of yield and flexibility.
3. Add green and sustainability-linked bonds
ESG debt offers stable demand and potential regulatory incentives.
4. Monitor liquidity indicators
Follow central bank balance sheets and corporate issuance trends — they often signal turning points before equity markets react.
5. Balance with equities
A moderate allocation to high-quality credit can enhance portfolio income while reducing volatility.
The macroeconomic feedback loop
Credit expansion fuels investment, which in turn supports employment, wages, and consumption. This virtuous cycle sustains growth without immediate inflation if productivity rises in parallel.
Economists estimate that a 1% rise in corporate borrowing typically lifts GDP growth by 0.3–0.5% within 12 months — especially when investment is directed toward infrastructure and innovation.
Thus, the current credit revival may be the missing link between monetary easing and real economic recovery.
Lessons from past cycles
The last major corporate borrowing surge occurred between 2014 and 2018. It ended not in crisis, but in a soft slowdown — proving that moderate, investment-led credit expansion can be sustainable.
The difference today is that capital markets are more diversified, with better risk management and stronger regulatory oversight. Global corporations are also less dependent on short-term funding, reducing systemic risk.
The bottom line: a disciplined boom
The global credit expansion of 2025–2026 is not about reckless borrowing — it’s about strategic financing. Companies are leveraging improved conditions to strengthen competitiveness, not chase short-term profits.
For investors, this represents a golden window: high real yields, stable spreads, and growing issuance. The opportunity lies in participating early and selectively, before the cycle matures.
Credit, long overshadowed by equities, is reclaiming its central role in portfolio strategy — signaling that the next global growth phase may be built on bonds, not bubbles.
