The private debt market has been a significant growth story for some time. As we now look at a backdrop of rising short-term interest rates, iCapital sees investors looking to private credit as “a significant buffer over publicly traded high-yield or leveraged loans.”Yet, such front-office growth only hints at the implications behind the scenes. As a provider of loan market solutions, we see this trend through an operational lens.
235,900: This figure represents the number of contracts in the UK that have yet to transition from reliance on London Interbank Offered Rates (LIBOR) to the new Sterling Overnight Index Average, or SONIA, according to January 2022 data from the Financial Conduct Authority (FCA). These contracts include interest-rate derivatives, bonds, securitisations, loans, mortgages and other products. They represent £472 billion in value, per the FCA.
We are now entering a third calendar year where the impacts of COVID-19 continue to inform strategic and operational decision making both in loan markets and in broader financial contexts. At the same time, central banks globally have been increasingly clear about their intent to readjust the approach to interest rates and stimulus programs that provided pandemic support. A new economic reality may be coming into play.