Loan markets in the US, Europe and Asia saw year-on-year declines in Q1 issuance as falling software stocks and disruption to energy supplies from the conflict in the Middle East hit confidence.
In the US, leveraged loan issuance reached US$444.1 billion in Q1 2026, down 14 percent from US$516.1 billion in Q1 2025, while in Europe, issuance reached US$104 billion, also 14 percent down during the same period in 2025. Year-on-year declines in APAC (excl. Japan) were even greater, with issuance of leveraged and non-leveraged loans nearly halving from US$65.4 billion to US$36.4 billion in Q1 2026.
US market slows after encouraging start
US loan markets made a positive start to the year, building on momentum from the second half of 2025 following three Federal Reserve interest rate cuts.
But steep declines to software company stock prices at the end of February—after the release of a new AI productivity tool—prompted fixed income investors to step back and assess the impact of AI on portfolios with high exposure to software and technology companies. US strikes on Iran and the resultant disruption to oil and gas supplies shipped through the Strait of Hormuz also dented market confidence.
Ultimately, issuance tailed off through the end of the quarter due to macroeconomic volatility. Activity in January alone represented just under half of total issuance in Q1, according to Debtwire data.
The market did not completely shutter, however, with financings for leveraged buyout deals struck in 2025 progressing despite broader uncertainty. Investor appetite for financing the US$55 billion take-private of video game company Electronic Arts—the largest leveraged buyout in history—proved robust, with loan markets providing US$6.1 billion to fund the deal. Financing for Trian and General Catalyst’s acquisition of asset manager Janus Henderson also cleared syndication, closing a US$2.6 billion senior secured debt package to support the deal.
These jumbo deals contributed to a 24 percent year-on-year increase in buyout issuance, which closed Q1 2026 at US$40.8 billion, the highest quarterly total since early 2022. Other M&A-related issuance also climbed, reaching US$61.7 billion in Q1, up 73 percent year-on-year.
Meanwhile, refinancing, the engine of the market through the rising interest rate cycle, declined in Q1, dropping nine percent from early 2025 levels to US$167.5 billion.
Financing costs climbed through Q1, leaving issuers with little incentive to pursue opportunistic refinancings. Average margins in March reached 3.6 percent, up from 2.83 percent in January, and original issue discounts have increased to an average of 1.57 percent, up from the 0.28 percent average in January.
Fewer issuers are coming to market, and those that do are having to pay more.
Europe takes selective approach against volatile backdrop
As in the US, the software sell-off and Iran conflict put European issuance into reverse after an encouraging start to the year.
Issuance in January was more than double that in February, and more than three times March’s total, according to Debtwire, as early momentum faded throughout the quarter.
The market remained open, but only on a selective basis. Issuance split evenly between buyout financing and refinancing, but only for higher-quality borrowers. B+ and B-rated loans represented more than 60 percent of issuance, while those rated CCC+ or below all but disappeared from the market, according to Debtwire.
Financing costs tracked US patterns and increased. Double-B and single-B pricing in March averaged 3.5 percent and 4.07 percent, respectively, each around 0.75 percent higher than January pricing points.
These pricing trends reflect a market that is more sensitive to risk and more cautious in deploying capital, yet ongoing activity among higher-rated borrowers highlights a resilience that should help drive a broader recovery as macro conditions improve.
Iran conflict has direct impact for APAC
The Iran conflict has taken an especially heavy toll on Asian economies, which rely on Middle East energy supply chains for around 40 percent of their energy imports, according to S&P.
Long-term disruption to oil and gas supplies from the Middle East could cost APAC economies between 0.3 percent and 0.8 percent of GDP, according to the United Nations. Lenders and borrowers have held off from issuing new loans until there is more clarity on where energy prices settle, and whether APAC economies can fill energy supply gaps from other providers.
Data center financings, one of the sectors expected to drive APAC loan demand in 2026, are especially exposed to prolonged energy supply bottlenecks. Prior to US-Israeli strikes on Iran, APAC was emerging as a major global data center hub, with US$800 billion of investment forecast to flow into the region’s data centers by 2030, according to Moody’s. Billions of dollars of loans lined up to fund this investment will test the market in the coming months, Bloomberg reports, as lenders review the risks that energy shortages could pose for project viability.
However, despite all the headwinds facing APAC lending activity, several sizeable new financings have successfully cleared the market. For example, Sun Hung Kai Properties, Hong Kong’s biggest property developer, secured a HK$20 billion (US$2.6 billion) bank loan for refinancing at favorable rates, according to Bloomberg, pointing to a possible recovery in the Hong Kong real estate market. Chinese conglomerate Fosun also secured a refinancing package, raising US$500 million from a consortium of international banks, and Singapore energy company Sembcorp lined up a A$3 billion (US$2.1 billion) loan to finance its acquisition of Australian counterpart Alinta Energy.
Even in a challenging market for APAC lending, select issuers are finding a way through, as has been the case in the US and Europe, with high-quality borrowers still able to secure financing.
Overall, while macroeconomic volatility tested the initial optimism observed early in the year, the resilience demonstrated by higher-rated borrowers across all three regions is indicative of a market with solid foundations heading into Q2 and the latter half of 2026.