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Chart of the week

Private credit yield premium hits a four-year high

Private credit has traditionally offered a yield premium over public credit markets. It has widened meaningfully today. Spreads tell a similar story.

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February 21, 2025 | 2 minute read

Yields: Private vs. public credit

Line chart showing yield on upper middle market private credit and B-rated syndicated loans since November 2021. While the yield differential between the two has evolved over time, private credit’s yield premium reached a three year high as of January 31, 2025, and is nearly double its average since January 2021.

Source: KBRA DLD, as of January 31, 2025. Upper middle market private credit refers to companies with earnings before interest, taxes, depreciation and amortization (EBITDA) of $100 million or more.

  • Investors have long turned to private credit, seeking the yield premium it has traditionally offered over public credit markets. Outside of a short period in 2022, when public credit spreads widened meaningfully, private credit has featured a notable yield premium, which sits at a three-year high today.
  • As the chart shows, private credit features an attractive double-digit yield (10.15%) with a yield premium of 226bps over B-rated loans (the closest public market comparison).1 Private credit’s yield premium today is nearly double its average of 121bps since January 2021.1
  • Credit spreads tell a similar story. While high yield bond spreads sit near their post-Global Financial Crisis lows, and senior secured loan spreads are only moderately wider, spreads for traditional sponsor-backed private credit strategies and non-sponsored transactions are between 115bps to 280bps higher than syndicated loans.2
  • These attractive yield and spread dynamics come at a time when optimism among U.S. middle market leaders is near a record high. Private credit of course is not immune from macro risks and uncertainties but may represent an attractive source of income and diversification potential today.

  • KBRA DLD, as of January 31, 2025. Upper middle market private credit refers to companies with earnings before interest taxes, depreciation and amortization (EBITDA) of 100 million or more.

  • High yield bonds represented by the ICE BofAML U.S. High Yield Index. Senior secured loans represented by the Morningstar/S&P Leveraged Loan Index. Data as of December 31, 2024, latest available. One cannot invest directly in an index. Past performance is not indicative of future results.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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