Yield Hunger Drives Spreads Inside 300 Basis Points
The public high-yield market is currently signaling a profound “Risk-On” environment, with investors aggressively chasing return in a capital-rich landscape. As of mid-December 2025, the ICE BofA US High Yield Index Option-Adjusted Spread (OAS) has compressed to 2.88% (fred.stlouisfed.org). This level represents historically tight pricing, sitting well below the long-term averages of 400-500 basis points.
When spreads breach the 300-basis-point threshold, it suggests markets are “priced for perfection.” Investors are effectively ignoring macroeconomic headwinds—such as potential inflationary stickiness or geopolitical friction—in favor of deploying cash. While this results in lower borrowing costs for issuers, it often signals a deterioration in protective covenants and a complacency regarding credit risk.
Inside the Numbers: The Risk Spectrum
The appetite for risk is evident across credit tiers. Even the riskiest segment of the market—CCC and Lower rated bonds—is seeing contained spreads, currently trading at an OAS of 8.77% (fred.stlouisfed.org). While this reflects some lingering caution compared to higher-rated tranches, the relative tightness indicates that credit issuance remains robust even for levered borrowers.
For Single-B issuers, the environment is particularly accommodating. The ICE BofA Single-B Semi-Annual Yield to Worst stands at 6.79%, offering borrowers attractive all-in coupons significantly lower than historical stress periods (fred.stlouisfed.org). This dynamic creates a “borrower’s market” in the public sphere, where terms are dictated by the issuer rather than the lender.
The Bond Capital View: Discipline in an Overheated Market
While tight spreads offer short-term benefits to public issuers, they often create a fragile ecosystem. In current conditions, public market investors frequently concede on structure—accepting “covenant-lite” terms—to win allocations. This race to the bottom creates future vulnerability.
At Bond Capital, we view this overheating as a signal to heighten our discipline, not relax it. While public markets chase aggressive yields with loose terms, Private Credit offers a strategic alternative focused on stability.
- Certainty of Execution: Public windows can slam shut overnight if volatility spikes. Our capital is committed and consistent.
- Structural Integrity: We prioritize durable capital structures that can withstand economic cycles, protecting both our investors and the long-term viability of our portfolio companies.
- Relationship Lending: In a tight spread environment, lenders often become commodities. We remain partners, providing bespoke solutions that standard public indentures cannot match.
For business owners and CFOs, the current tightness is an opportunity to refinance, but relying solely on public market sentiment carries risk. A balanced capital structure, anchored by relationship-driven private credit, ensures resilience when the market cycle eventually turns.
