2Q26 Alternative Credit Market Overview

Despite generally upbeat data, underlying risks demand more than beta exposure.

Credit markets bounced back in the second quarter as investor appetite for risk returned. Signs of easing tensions in the Middle East—which here in July appear to have been mere head fakes—and the prospect of more normal energy prices encouraged investors back to risk markets after the challenges of the first quarter.

Recent indicators, overall, point to a resilient US economy. GDP is forecast to continue growing,¹ while consumer spending remains robust in large part to the outsized contribution of higher-income consumers.² The unemployment rate is well below long-term averages, and payroll growth, while moderating, continues positive.³ At the same time, significant potential downside risks cloud the long-term outlook. Perhaps most notable among these is inflation, expectations of which remain well above target for the next several quarters.⁴ With the war in Iran entering a new stage and the impact and duration of the oil shock highly uncertain, consumer-sentiment readings have sunk to record lows even as spending levels persist.⁵

Like the economy, financial markets have remained resilient—on the surface. Equity indexes have continued to find support from a narrow set of themes, most notably AI-linked capital spending and the resilience of higher-end consumers. Credit spreads have retraced a meaningful portion of the February and March weakness,⁶ fund flows have improved, and primary markets have reopened selectively. Capital is still available, but it is becoming more conditional. In an overall stable environment with elevated yields, we are seeing meaningful underlying dispersion and we believe investors are less willing to forgive mistakes. One of our colleagues captured the paradox well: “Everybody wants yield, nobody wants risk.”

This underscores our viewpoint that traditional credit beta increasingly carries vulnerabilities that are not obvious from spread levels alone. Public credit spreads remain relatively tight, covenant protection is often limited, and private credit exposure can be tied to the same corporate conditions that drive public leveraged credit. What looks diversified by asset class can share common risk factors.

For much of the last decade, credit investors have been rewarded for adding exposure. Liquidity has been abundant, refinancing markets open and beta often doing more of the work than anyone was willing to admit. Year-to-date has been a reminder that credit is not one beta. It is a collection of very different risks that share a label, thus requiring a more thoughtful approach. With markets as they are today, outcomes depend more on how risk is sourced, underwritten, documented, collateralized and controlled.

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1. Source: Federal Reserve Bank of New York; data as of July 17, 2026.

2. Source: Federal Reserve Bank of St. Louis; data as of May 31, 2026.

3. Source: Bureau of Labor Statistics; data as of July 2, 2026.

4. Source: BofA Global Research; data as of June 5, 2026.

5. Source: University of Michigan; data as of June 26, 2026.

6. Source: Bloomberg; data as of June 30, 2026.

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This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.

All investments involve the risk of loss of principal.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

The information presented does not reflect the performance of any fund, strategy or account managed or serviced by First Eagle, and there is no guarantee that investors will experience the type of performance reflected. There is no guarantee that any market forecast set forth in this material will be realized. There is no guarantee that any historical trend referenced herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The mention of specific securities is not a recommendation or solicitation to buy, sell or hold any particular security and should not be relied upon as investment advice.

Alternative investments can be speculative and are not suitable for all investors. Investing in alternative investments is only intended for experienced and sophisticated investors who are willing and able to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks before investing. Certain of these risks include:

• Loss of all or a substantial portion of the investment;
• Lack of liquidity in that there may be no secondary market or interest in the strategy, and none is expected to develop;
• Volatility of returns;
• Interest rate risk;
• Restrictions on transferring interests in a private investment strategy;
• Potential lack of diversification and resulting higher risk due to concentration within one or more sectors, industries, countries or regions;
• Absence of information regarding valuations and pricing;
• Complex tax structures and delays in tax reporting;
• Less regulation and higher fees than mutual funds;
• Use of leverage which magnifies the potential for gain or loss on amounts invested and is generally considered a speculative investment technique and increases the risks associated with investing in the strategy;
• Carried interest which may cause the strategy to make more speculative, higher risk investments that would be the case in absence of such arrangements; and
• Below investment-grade loans which may default and adversely affect returns.

Asset-based lending (ABL) is corporate borrowing supported by specific assets of the borrower rather than its cash flows.

Broadly-syndicated loans (BSL) typically refer to floating-rate commercial loans provided by a group of lenders—the syndicate—to a noninvestment grade borrower.

Collateralized loan obligations (CLO) are financial instruments collateralized by a pool of corporate loans.

Direct lending refers to a loan agreement negotiated between a borrower and single or small group of nonbank lenders. Direct lending can also be referred to as “private credit” or “private lending.”

Residential transitional loans (RTL) are short-term loans to real estate developers for the purpose of renovating a residential property. The loans are secured by the property being renovated.

Structured credit is a financial instrument that pools together groups of similar, income-generating assets.

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