Default rates in the US private credit market are expected to ease next year as interest rates fall, though the asset class remains one of the most vulnerable segments of the credit landscape, according to a report by Reuters citing BofA Global Research.
Strategists forecast private credit defaults to decline to 4.5% in 2026, down from an estimated 5% this year, as anticipated Federal Reserve rate cuts provide relief to borrowers. Most private credit loans are floating-rate instruments, meaning interest expenses move directly with benchmark rates.
Analysts warned, however, that underlying risks remain elevated. BofA highlighted opaque lending structures and a concentration in technology and services — sectors exposed to AI-driven disruption — as key vulnerabilities. Any disruption could have broader implications across markets, given the scale of bank-private credit partnerships.
US banks lent nearly $300bn to private credit managers as of June, according to Moody’s, while Morgan Stanley estimates the private credit market has expanded to around $3tn in early 2025 from $2tn in 2020.
