Debt capital markets (DCM) have been riding a wave of transformation over the past decade, shaped by ultra-low interest rates, abundant liquidity, and unprecedented central bank interventions. But cycles don’t stay still. As inflationary pressures, higher rates, and shifting investor appetites redefine the financial landscape, the big question emerges: are debt capital markets ready for the next credit cycle?
Let’s unpack where things stand, what risks are building, and where opportunities might lie for issuers, investors, and intermediaries.
Credit cycles typically move through four broad phases: expansion, downturn, repair, and recovery. For much of the last decade, markets were stuck in an unusually long expansion fuelled by cheap money and easy access to credit. But the tide began to turn with central banks hiking rates to combat inflation, and the cost of borrowing has surged.
This marks the early stages of a potential downturn. Companies that refinanced during the low-rate era are now facing maturities at much higher yields. Investors, in turn, are becoming more selective, reassessing creditworthiness, and demanding stronger covenants.
The challenge for issuers is clear: accessing capital won’t be as straightforward as it was during the liquidity boom. The opportunity, however, is equally clear: those who can demonstrate resilient balance sheets and credible strategies will find investors willing to pay attention, even if pricing is tougher.
The next credit cycle won’t simply repeat the past. Several structural changes in debt capital markets are likely to shape how the cycle plays out.
With benchmark rates elevated and spreads widening, the cost of capital has reset. This impacts not just weaker credits but also investment-grade issuers, who may now have to consider alternative funding strategies such as hybrid instruments or private placements.
Sustainable finance has moved from the margins to the mainstream. Investors increasingly demand transparency on ESG metrics, and issuers that can demonstrate alignment with green or social mandates will stand out. Even in a tougher environment, ESG-labelled bonds continue to attract resilient demand.
While developed markets like the UK, Europe, and the US wrestle with slower growth and persistent inflation, emerging markets present a more mixed picture. Some economies are grappling with debt sustainability issues, while others are leveraging demographic and productivity trends to attract capital. Cross-border issuance is likely to see renewed activity, but investors will weigh political and FX risks more carefully.
Digital platforms are streamlining issuance processes, from book-building to settlement. The rise of tokenisation and blockchain-enabled debt instruments is still in its infancy, but over the coming cycle, technology could lower costs and broaden access to new classes of investors.
As always, risk is the defining characteristic of the credit cycle. The next downturn may not resemble the global financial crisis, but several vulnerabilities are worth flagging:
Despite the challenges, the next credit cycle also offers opportunities. In fact, periods of reset often separate the resilient from the vulnerable and reward those who adapt early.
Navigating the next credit cycle won’t be a solitary exercise. Issuers, investors, and intermediaries will need more dialogue, more information-sharing, and more cross-border collaboration. Market participants that are plugged into the right networks and forums will be best positioned to adapt.
Events, roundtables, and networking platforms are set to play a critical role in helping stakeholders make sense of shifting dynamics. In a market where conditions can turn quickly, trusted relationships and timely insights are as valuable as pricing power.
In truth, readiness depends on perspective. On the one hand, higher costs, refinancing pressures, and geopolitical uncertainty point to stress ahead. On the other, stronger fundamentals in certain sectors, greater investor discipline, and ongoing innovation suggest markets are better equipped than in past downturns.
What this really means is that the next credit cycle will be a test. Issuers must prove resilience. Investors must sharpen their analysis. And intermediaries must provide efficient, transparent access to capital. The winners will be those who treat the cycle not as a threat but as an opportunity to re-price risk more rationally and to rebuild trust in the value of capital markets.
At Global Banking and Markets (GBM), we understand that the debt capital markets are entering a new phase—one defined by both uncertainty and opportunity. Our events and networking infrastructure is designed to connect issuers, investors, and intermediaries across borders, helping them build the relationships and insights needed to navigate the next cycle.
Whether you’re an issuer planning your refinancing strategy, an investor seeking access to global opportunities, or a financial intermediary facilitating cross-border deals, GBM provides the platform to exchange ideas, explore partnerships, and unlock value.