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Giấy phép số 4978/GP-TTĐT do Sở Thông tin và Truyền thông Hà Nội cấp ngày 14 tháng 10 năm 2019 / Giấy phép SĐ, BS GP ICP số 2107/GP-TTĐT do Sở TTTT Hà Nội cấp ngày 13/7/2022.
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Market sentiment around XRP has dropped to one of its lowest levels in two years, with social metrics showing a near balance between bullish and bearish commentary. Historically, similar “fear” conditions have preceded short-term rebounds of 10%–15%. XRP is currently testing critical support near $1.10, while technical indicators suggest selling…
As global markets entered 2026 with optimism, investors were buoyed by improving fundamentals in non-U.S. and emerging markets, a weaker U.S. dollar, and strong spending plans from AI hyperscalers alongside resilient consumer demand. In fixed income, high-quality bonds—particularly U.S. Treasuries—offered attractive yields and potential price gains as the Federal Reserve continued to ease rates. That backdrop has shifted sharply by March 2026, as markets face two major uncertainties: rising concerns around private credit and the geopolitical fallout from U.S. military strikes on Iran.
Private credit refers to loans made outside the traditional banking system and public markets. Lenders typically include asset managers, private funds, and institutional investors, providing financing to highly leveraged or speculative borrowers that may not access public markets. These loans are often packaged and sold to investors through private vehicles or, in some cases, via publicly traded business development companies (BDCs).
While recent fraud headlines (including cases such as Tricolor and First Brands Group) have raised attention, the letter argues these are likely idiosyncratic rather than systemic. However, it highlights other risks, including concentration in underlying loan pools and the possibility that AI disruption could undermine the viability of entire borrower groups.
Using BDCs as a proxy for private credit exposure, Goldman Sachs data cited in the letter shows:
The letter characterizes this exposure as meaningful but not overwhelming.
The letter also points to evolving credit quality in private credit. It notes that lower-quality borrowers may have shifted from public markets into private lending. Evidence cited includes changes in the public high yield market composition:
From a default perspective, the letter cites Fitch Ratings estimates that the current default rate for private credit loans is around 9%. It argues this figure may be understated due to limited transparency in private markets and more flexible payment terms, including pay-in-kind (PIK) arrangements that can delay technical default by adding missed interest to principal.
The letter states that PIK activity is about 11% of the total marketplace and that 58% of these loans are “bad Payment In Kind Loans,” seeking to postpone a default. It estimates that adding this effect implies a “shadow default rate” roughly 6 percentage points higher than the reported 9%.
Looking ahead, the letter notes some forecasts call for defaults as high as 15% in a worst-case scenario, while also suggesting that this may still understate severity. It uses public credit as a proxy: default rates for CCC-rated bonds have historically been 13% but have exceeded 30% during periods of stress, citing the technology bubble and the Great Financial Crisis as examples.
It also describes investor pressure already emerging:
In addition, the letter says investors have been exiting BDCs. Using the MVIS® U.S. Business Development Companies Index as a proxy, it reports BDCs fell about 10% in Q1. Based on most recently reported book value, it cites a 15% discount, described as among the steepest in the last decade (surpassed only by the COVID-19 selloff and the 2022 inflation scare). The letter argues this pricing likely reflects expectations of future defaults and potential write-downs.
The letter argues that while public credit is not expected to face the same default mechanics as private credit, the likely risk is spread widening. It notes that public credit markets have improved in credit quality, but spread widening could occur as private credit investors seek liquidity or “easy capital” to cover losses or meet redemption needs.
It also highlights regional banks due to their involvement in private credit lending. The letter cites data suggesting that a handful of major regional lenders have more than 20% of their loan portfolios in non-depository financial institutions (NDFIs), while the industry overall has approximately 4%–5% of total assets allocated to direct private credit holdings. It argues that a single failure is unlikely to trigger a crisis, but systemic shock risk rises if private credit losses lead to a wave of bank failures.
The second volatility driver is the unexpected geopolitical conflict in the Middle East that began with Operation “Epic Fury.” The letter says the campaign started February 28 and, as of publication, had not been resolved. It attributes broad market effects primarily to commodity disruptions, especially oil.
Investors have seen sharp swings in crude oil prices, with crude falling below $56 per barrel in early January and rising to near $100 per barrel by quarter end. The letter cites the closure of the Strait of Hormuz as the key factor. Under normal conditions, the strait accounts for roughly 20% of global oil supply. It reports that tanker traffic has effectively stopped, with essentially zero oil and LNG tanker traffic versus a normal rate of about 150 vessels per week.
In bond markets, the letter notes that a typical “flight to safety” does not fully materialize when higher commodity prices raise inflation risk. It states that inflation expectations over the next decade increased only marginally (+20 bps), but the 2-year breakeven rate rose by more than 100 bps since the start of the year, ending the quarter at an annualized 3.4%. It adds that interest rates rose across the yield curve and changed expectations for the future path of rates.
It also reports that futures markets had been pricing roughly two and a half 25 bps rate cuts by year end earlier in the year, but by quarter end cuts were effectively ruled out, with pricing indicating essentially no change by the Fed’s December meeting.
The letter argues the current environment differs from 2022. It says financial conditions today are relatively neutral rather than extremely loose, and that demand-driven inflation risk is lower. It also contrasts starting yields: the 10-year Treasury began 2026 at 4.16%, compared with a low in 2021 barely above 1.00%. The letter frames this as an income buffer that could help absorb modest rate increases.
Equity markets declined globally, with emerging markets taking the largest hit. The letter reports:
It says the key risk for equities is an increase in the discount rate, which reduces the present value of future earnings and dividends. It notes that in the U.S. during the first quarter, large value stocks gained 2% while growth stocks fell by nearly 10%.
For emerging markets, the letter emphasizes dependence on Middle East oil and the Strait of Hormuz. It cites energy sourcing shares including:
It also describes a currency second-order effect: since oil is globally priced in dollars, higher oil prices can increase demand for USD, weakening non-U.S. currencies as they convert to pay for oil.
The letter reports that the MSCI Emerging Markets index fell 12% since the conflict began, with South Korea the largest detractor at -22%. It also states that the EM currency basket weakened by nearly 3% versus the U.S. dollar.
Despite the drawdown, it says emerging markets had not fully surrendered their earlier-year performance advantage, with U.S. large caps up more than 4% year-to-date (YTD) and outperforming U.S. growth stocks by more than 9.50% on a relative basis. It also notes that emerging value stocks ended the quarter in positive territory.
From a portfolio perspective, the letter argues that diversification helped limit damage. It says investors with concentrated holdings in highly valued U.S. large growth stocks suffered the greatest losses, while broadly diversified investors and those positioned in attractively valued assets fared better. It also notes that commodities rose by as much as 40% depending on the index used, and that some asset categories—including U.S. value and REITs, as well as developed and emerging market equities—were generally flat or positive in Q1.
The letter frames 2026 as a period where two volatility sources—private credit stress and the Iran-driven commodity shock—have changed market assumptions. It argues that private credit concerns have so far affected public markets mainly through BDC selloffs and modest spread widening, but that a worsening default environment could spill over into public credit and pressure regional bank balance sheets. It also says public credit appears relatively insulated from private credit’s core risks, with spread widening likely driven more by forced selling than fundamental deterioration.
On Iran, it says commodity disruptions have raised inflation concerns across both equity and bond markets. It maintains that high-quality fixed income—especially Treasuries—remains attractive, citing minimal year-to-date losses (-0.05%) and the role of higher starting yields in improving return expectations. It concludes that the greatest equity risk remains in highly valued growth sectors most sensitive to rising discount rates, and reiterates the importance of staying disciplined and diversified.
All data as of 3/31/2026 unless otherwise noted.
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