The weakest part of corporate America is already experiencing a credit cycle.
3. But broad corporate America is NOT in a credit crisis
This distinction is crucial.
Broad HY OAS is only:
280 bp
BBB:
97 bp
Investment Grade:
79 bp
Those are nowhere near crisis levels.
The CCC–HY gap is now approximately:
832 bp
That means investors are still making an enormous distinction between bad companies and average companies.
The market is effectively saying:
Weak borrowers are screwed. Good borrowers are fine.
That's fundamentally different from 2008 or March 2020, when investors began questioning credit broadly.
4. Private credit is the weakest part of the system
Fitch's U.S. private-credit trailing-12-month default rate has reached a record:
6.3%
Healthcare and industrial/manufacturing private-credit borrowers are running close to:
10% default rates.
That's serious.
But public leveraged loans look considerably healthier.
And there's an interesting development:
Around $12B of private-credit deals have been refinanced into the syndicated leveraged-loan market during Q3, already a record.
But mostly the better borrowers are escaping.
So increasingly:
Good borrower → multiple markets compete to finance you.
Weak borrower → creditors negotiate how to avoid recognizing the default today.
That is classic late-cycle credit bifurcation.
5. Small businesses are also flashing red
August Subchapter V restructurings:
+63% YoY
This is another manifestation of the K-shaped economy.
Small businesses don't have access to:
• public bond markets • cheap investment-grade financing • liquid equity markets • massive cash balances
They depend much more heavily on bank credit, floating-rate loans and expensive working capital.
So high rates hurt them dramatically more than they hurt Microsoft or JPMorgan.
The bottom of the K isn't merely experiencing bad sentiment.
It is experiencing balance-sheet destruction.
6. CLOs are still holding
This is extremely important.
CLOs are one of the largest structural buyers of leveraged loans.
If CLO funding breaks, the transmission can become:
Loan losses ↑
→ CLO collateral deteriorates
→ AAA CLO spreads widen
→ new CLO issuance stops
→ structural demand for leveraged loans disappears
→ refinancing becomes difficult
→ B borrowers become CCC borrowers
→ defaults accelerate.
We're not there.
New CLOs are still pricing.
Refinancings and resets are still happening.
This is one of the strongest reasons I don't think we're currently approaching a systemic credit event.
7. Bank CDS moved this week
This is new.
Approximate 5-year CDS:
JPMorgan: 37.9 → 41.1 bp
Bank of America: 53.5 → 59.2 bp
Citigroup: 52.6 → 59.1 bp
Those are meaningful percentage moves.
But the absolute levels remain low.
JPM at ~41 bp does not indicate a banking panic.
So I interpret this as:
First amber signal from banks — not evidence of a banking crisis.
If JPM moves through ~50–60 bp and BofA/Citi move toward 70–80 bp while IG financial spreads widen simultaneously, I would become considerably more concerned.
8. The most reassuring indicator is repo
On September 24:
SOFR: 3.88%
Fed Funds: 3.88%
Difference:
0 basis points.
This is extremely important.
A genuine systemic financial crisis eventually infects the price and availability of cash itself.
Right now there is essentially zero evidence of stress in the core dollar funding system.
This is why I still assign a relatively low probability to a 2008-style event.
9. The real danger is now the Treasury market
This week:
2Y Treasury: 4.76% → 4.87%
10Y: 5.01% → 5.18%
30Y: 5.34% → 5.47%
This is getting serious.
We've crossed one of the thresholds I've been watching:
10Y >5.15%
and we're basically at:
30Y = 5.5%.
Why does this matter?
Because companies don't borrow at the credit spread.
They borrow at:
Treasury yield + credit spread.
And this week both increased.
Broad HY effective yield:
7.52% → 7.80%
CCC:
15.59% → 16.04%
That is genuine tightening of financial conditions.
10. This is the combination that could eventually cause a major correction
That's the path I'm watching heading into the midterms.
12. AI credit is beginning to matter too
AI/hyperscaler corporate bonds are reportedly trading around:
~115 bp spreads
versus roughly:
~78 bp for broader investment-grade corporates.
That does NOT mean hyperscalers are facing solvency problems.
The issue is supply.
The market may need to absorb hundreds of billions of dollars of AI infrastructure debt.
Investors are increasingly saying:
We'll finance it, but we need more compensation.
This matters because AI/mega-cap equities have been one of the principal supports of the upper arm of the K.
If AI credit spreads continue widening and eventually AI equity multiples respond, that could become the missing bridge between lower-end credit stress and affluent household wealth.
13. What would turn the current AMBER signal RED?
These are the numbers I'm watching:
Single-B OAS
Current: 286 bp
Warning: 350–375 bp
Broad HY OAS
Current: 280 bp
Warning: 350 bp
Serious: 400–450+ bp
BBB OAS
Current: 97 bp
Warning: 125 bp
Serious: 150+ bp
Investment Grade OAS
Current: 79 bp
Warning: 110–120 bp
Serious: 150+ bp
10Y Treasury
Current: 5.18%
Serious warning: 5.30–5.50% sustained
30Y Treasury
Current: 5.47%
Danger zone: 5.75–6.0%
JPM CDS
Current: ~41 bp
Warning: 50–60 bp
Serious: 80+ bp
CLO AAA
Warning: 150–160 bp
Serious:
>180 bp + issuance freezes
Repo
Current:
SOFR – Fed Funds = 0 bp
Serious warning:
SOFR > Fed Funds by 20–30+ bp persistently + Fed liquidity facility usage
14. The combination matters more than any single number
The crash signal I'm watching is:
10Y >5.3–5.5% AND HY OAS >350–400 bp.
That would mean the sovereign-rate shock has begun infecting corporate credit.
Then add:
BBB >125–150 bp
and the problem has escaped leveraged borrowers.
Then add:
Bank CDS widening + CLO AAA widening + repo stress
and I would start using the word:
SYSTEMIC.
We're nowhere near that final stage today.
My scenario probabilities
~38% — Rate-driven equity correction
10Y/30Y yields remain elevated.
Equity multiples compress.
S&P/Nasdaq fall roughly 10–20%.
No banking crisis required.
~35% — Continued bifurcation
Weak companies continue defaulting/restructuring.
Private credit remains ugly.
Small businesses remain under pressure.
But large companies, banks, CLOs and broader credit remain healthy.
~20% — Broader recessionary transmission
High rates eventually damage employment and investment.
HY moves toward 400–500 bp.
BBB begins widening.
Equities decline 20–30%+.
~7% — Genuine financial accident
Private-credit/NDFI/CLO stress spreads into banks.
Forced selling begins.
Repo/funding markets deteriorate.
Credit becomes unavailable rather than merely expensive.
That's the true crash scenario.
It is still a tail risk.
Bottom line
For the first time in this monitoring cycle, I would change the description from:
“Lower-tail credit stress with no contagion.”
to:
“Lower-tail credit stress with the first signs of upward transmission, while Treasury yields are already entering dangerous territory.”
But don't confuse this with a credit crisis.
The numbers still say:
CCC: 1,112 bp 🔴
Single-B: 286 bp 🟡
HY: 280 bp 🟡
BBB: 97 bp 🟢
IG: 79 bp 🟢
JPM CDS: ~41 bp 🟡
SOFR–Fed Funds: 0 bp 🟢
10Y: 5.18% 🔴
30Y: 5.47% 🔴
The weakest borrowers are already in a serious credit cycle.
The broader financial system is not.
The biggest immediate threat to markets is the risk-free rate itself.
The key thing I'm watching now:
Does HY retreat toward 260–270 bp when Treasury volatility settles?
If yes, containment is working.
If instead HY moves:
280 → 300 → 325 → 350+ bp
while the 10Y remains above 5%...
then the regime is changing.
That's when I would become materially more defensive.(Historical earnings: For fiscal 2026 full year (period ended 2026-02-28), BlackBerry reported basic EPS of 0.09, diluted EPS of 0.09, net income of USD 53.200 million, and revenue of USD 0.549 billion. In the prior-year period (ended 2025-02-28), basic EPS was -0.13, diluted EPS was -0.13, net income was USD -79.000 million, and revenue was USD 0.535 billion. For fiscal 2026 full year (period ended 2024-02-29), basic EPS was -0.22, diluted EPS was -0.22, net income was USD -0.130 billion, and revenue was USD 0.759 billion.
Consensus expectations: The next upcoming consensus is for fiscal 2027 Q3, with an EPS estimate of 0.0481 and revenue estimate of USD 0.154 billion.)