The Fed Moved. Spreads Didn’t.
For two years the only question was when the cuts would start. That question is closed. The FOMC raised rates at its last meeting and is signaling another, with CPI still above target and core services refusing to cooperate. Higher-for-longer stopped being a posture and became a policy direction.
Then check the other screen.
High-yield spreads opened July at 2.70%, widened to 2.87%, and printed 2.71% in mid-September – seventeen basis points of travel in five weeks, against materially higher Treasury yields. LBO institutional spreads have compressed to 332 bps from 446 bps in 2023. The cost of base money is rising and the cost of deal capital is falling at the same time.
That divergence isn’t a mispricing. It’s fundamentals doing the work. S&P 500 gross margins at a record 70.9%. Business loan delinquencies flat at 1.34%. Layoffs pinned at 1.1%. Banks holding $19.4 trillion in deposits against $13.9 trillion in loans. Credit is being priced on cash flow, not on the Fed.
So what changes is the underwriting, not the appetite. Structures leaning on cheap debt will struggle. Transactions built on real cash flow, disciplined equity and conservative leverage will clear – and they’ll clear with lenders competing to fund them. The rate path is finally knowable. Knowable is underwritable.
Our September 2026 Credit Market Update sets out what the data says about the back half of the year, and what it means for how you finance the next deal.
To discuss what it means for you, reach out to the team at Bankers Edge Advisory.