Are credit markets in a bubble?

Andrew Metcalf, Head of Fixed Income and Stephen Hayde, Managing Director share the latest market insights from the fixed income team on whether credit markets are showing signs of a bubble.

Credit spreads – the additional yield an investor receives for lending money to a company rather than a government for the same period – have been rich versus history for some time. However, October saw a significant number of events and milestones that more firmly lead us to believe that credit markets are now displaying bubble-like characteristics.

In October 2025, Artificial Intelligence (AI)-mania finally reached global bond markets – with faint echoes of the 1999 tech bubble. At the same time, growing investor concerns around private credit, coupled with increasingly complex bond structures and financial disintermediation to fund datacentre projects are reminiscent of 2007. Both factors attest to equity market bullishness finally leaking into credit markets.

While we cannot predict the future, we highlight the following events as evidence of bubble-like conditions in credit:

1. Valuations remain at or near record ‘rich’ levels across all currencies and rating profiles. By any reasonable (or unreasonable) measure, credit spreads today offer very poor risk/reward characteristics (see table above).
2. The largest-ever single corporate bond was issued with a par value of $27.3bn. This was issued by a Special Purpose Vehicle (SPV) called ‘Beignet Holdings’ (20% owned by Meta) to build a large datacentre. The bond, however, is not guaranteed by Meta and was issued to ensure the debt does not appear on Meta’s balance sheet.
3. This record issuance looks likely to be eclipsed in the coming days by a potential $38bn bond. This will fund yet another datacentre project, with backing from Oracle Corp.
4. The 7th largest ever bond issuance was completed by Meta – which directly issued $30bn of new debt (days after the related $27.3bn bond issued via the Meta SPV, above).
5. Days later, Google joined the party and issued c. $25bn of new bonds.
6. Terrawulf, a bitcoin mining firm that lost over $100m in the last 12 months (on just $144m of revenue), issued a $3.2bn bond (rated BB). Proceeds will be used to fund various datacentre projects.
7. Unilever, the consumer goods company with an A+ credit rating, enjoyed a brief period where its sterling-denominated bonds were trading at negative spreads (i.e. cheaper than Gilts).
8. The ‘reach for yield’ continued to bring higher risk issuers to bond markets. In October, banks in Kazakhstan and Uzbekistan issued their countries’ first ever Additional Tier 1 securities (AT1s). These are higher risk bonds designed to absorb losses in the event of capital stress. Both bonds were heavily oversubscribed.
9. Concerns over higher risk private credit continued to grow. After the large (bank loan) defaults of both First Brands and Tricolor in September (both facing allegations of fraud), Blackrock’s private credit business is pursuing legal action against a little-know telecoms company for over $500m, amidst significant losses and allegations of widespread fraud.
10. To perfectly summarise the current feverish state of credit markets, an (unnamed) broker provided us with a neat example. In mid-October, we were offered the opportunity to buy a Barclays AT1 bond at a yield of 5.7%, with the accompanying statement that this bond was, “a super safe place to park cash”. It is important to remember that AT1 bonds are the highest risk, most equity-like bonds issued by banks. They are perpetual securities that are legally written-down should a bank breach capital rules. They require significant research to understand the risks. At such valuations, they are far from a “safe place to park cash”. Note that we do hold several AT1s but we targeted these at much more attractive valuations than the example above.

The TrinityBridge Select Fixed Income Fund is a nimble and proactive fund, and we have a strong track-record of patiently waiting for attractive buying periods to emerge. The same discipline applies to selling bonds during periods of irrational or unattractive valuations. 

The Fund is a flexible, strategic bond fund. Unlike bond funds that operate with strict benchmarks (ie 80% of holdings must be in Investment Grade or High Yield credit), we have the freedom to allocate to Government bonds, credit – or any other bonds that we believe are attractive throughout the cycle. This freedom means that today, 54% of fund holdings are in Government bonds (versus 0% in 2019), and just 12% of the fund is invested in high yield and ‘unrated’ bonds (versus 60% in 2019).

Whether or not we are in a credit bubble, three things are key: sticking with a sound and disciplined research process, nimbleness and patience.

Our fundamental and proprietary research means that we only invest in bonds that we understand well – and at valuations we consider attractive.

And although Select Fixed Income is a go-anywhere, ‘best ideas’ strategic bond fund, we do not invest in any forms of distressed debt, mortgage-backed securities, asset-backed securities, municipal bonds, or high yield bonds with a rating below BB-. We also eschew any costly derivative overlays.