Portfolio managers expect defaults to worsen far more than credit spreads, partly because of market anxiety over the ongoing conflict with Iran, which is fueling anxiety among industry investors, according to the latest credit outlook from the International Association of Credit Portfolio Managers.
According to the survey released earlier in April, the Credit Spread Index stands at -46.2—the most negative reading since March 2025. Furthermore, the Credit Default Index is -64.3, also marking the lowest score in about three years.
"This makes a lot of sense because under these stressful circumstances, there is a lot of unpredictability," said Som-lok Leung, executive director at the IACPM. He explained that even before the war in Iran began, the tariff situation had already disrupted global trade, leading to unforeseen market changes.
Defaults are more directly tied to the real economy, while spreads reflect risk pricing. Even before the war, much of the uncertainty had already been priced into the market due to signals from the U.S. government. As a result, the outlook for spreads did not shift dramatically from the previous quarter. In contrast, the outlook among credit portfolio managers for defaults changed significantly more, Leung said.
One of the biggest issues is inflation, with its impact seen in central bank actions.
Despite the precarious picture that these numbers paint, the more complete picture gives reason for optimism, according to participants. Portfolio managers indicated that liquidity remains under control, with no significant signs of stress. Also, portfolio managers are not observing companies experiencing large drawdowns or resorting to tapping their revolving credit facilities, according to the IACPM release.
In this period of volatility, less creditworthy players will be affected by an unfavorable credit environment. With that level of uncertainty, it's very difficult to make business decisions, especially with many other issues stemming from the Iran war, Leung stated.
"One of the biggest issues is inflation, with its impact seen in central bank actions," he said. Once the effects seep into the economy, the first firms to be hit are the smaller, less creditworthy ones, which portfolio managers are watching carefully, he added.
Fitch Ratings' April 2026 "U.S. Corporate Distressed and Default Monitor" also warns of rising default risk amid ongoing geopolitical tensions. While the leveraged finance market remains active, it is facing "dual-shock stress" from the Iran conflict and structural disruptions in AI and software, putting pressure on both the primary and secondary loan and bond markets, the rating agency said.
Examining only bank activity fails to reveal the full extent of the Iran war's impact.
"We think the more important divergence is not within the IACPM data, but between the IACPM data and the private credit data," said Lakshmi Ganapathi, founder and senior researcher at the firm Unicus Research.
She explained that IACPM respondents are banks, insurers, and asset managers, which represent the syndicated and bank-held books. Here, liquidity discipline appears intact. By contrast, the non-traded Business Development Company (BDC) and interval fund segment has been activating redemption gates, she said. BDCs are closed-end investment funds that invest in small- and mid-sized private companies, while interval funds are SEC-registered, closed-end investment companies.
"The structural vulnerability sits in private credit, floating-rate borrowers, retail capital with an imperfect understanding of liquidity terms, and refinancing pressure into 2026," Ganapathi said, adding that it is key to remember that private credit has yet to undergo a credit cycle.
The IACPM's Credit Outlook Survey measures portfolio managers' expectations for credit spreads over the next three months, and how credit defaults in various sectors will change over the next year.
Responses are presented in a diffusion index from –100 to +100, measuring consensus. A +100 means all expect spreads to narrow and defaults to fall; –100 means all expect spreads to widen and defaults to rise; 0 means no clear consensus or that most expect no change.
The conflict hasn't stopped deals from happening. Companies still need to issue debt; the key is to find the most efficient way to do so.
