Stress in the private credit market has captured headlines in 2026. Defaults are rising, according to Morningstar DBRS credit research, and investor attention has turned to AI’s disruptive potential, with business models in software and other industries called into question. Semiliquid funds tracked by Morningstar that focus on private credit have seen heightened redemption requests.
Attention has naturally turned to the bank loan market, often considered a more liquid proxy for private credit. The Morningstar LSTA US Leveraged Loan Index, composed of senior, broadly syndicated loans that are priced daily, serves as the category index for Morningstar’s fixed income semiliquid funds peer groups.
In February, the index declined 0.78%, the most significant monthly loss since September 2022. Software represents the largest sector in the broad index, at a weight of nearly 13%. The dedicated Morningstar LSTA US Leveraged Loan Software Index fell by 4.17% during the month. Both the broad market index and the software index bounced back in March, with 0.60% and 1.36% gains, respectively, through March 24.
Volatility in the bank loan market has been exacerbated by war in the Middle East and macroeconomic fears. On the positive side, a consortium taking Electronic Arts private is coming to market with the largest leveraged buyout package since the Global Financial Crisis, as reported by the LCD News unit of PitchBook, Morningstar’s private markets research arm. New loans expand a market that has grown to $1.4 trillion as measured by the index.
Recent Leveraged Loan Volatility
Data as of March 24, 2026
Elizabeth Templeton, Senior Product Manager, Fixed Income & Multi-Asset Indexes, Morningstar:
“After stellar 2023-2025 returns, the leveraged loan market has hit a speed bump in early 2026. As a more liquid alternative to private credit, though, the market has also exhibited resilience. Elevated yields continue to hold appeal for investors.”
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