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Update

Barrow Hanley Credit Partners Monthly Market Update | AI, Tariffs & Geopolitical Uncertainty

In this post:

3.18.2026
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Executive Summary

  • AI disruption dominated the narrative, as investors reassessed the durability of traditional software business models and thetechnology’s implications for margins and pricing power.
  • Technology weakness drove market volatility, with capital rotating away from tech-heavy indices and into the broader market.
  • Late in the month, policy shifts and changes to the U.S. tariff framework added uncertainty, alongside escalating conflict inthe Middle East.

Market Recap

February extended January’s software theme: software is now the primary lens through which investors are underwriting risk. At the end of February, the US, Israel, and Iran conflict escalated into direct exchanges of military strikes across the region. This occurred after the last trading day in February, so we would expect March to start with elevated volatility.

On February 20, the Supreme Court struck down the IEEPA-based tariffs. The administration responded within hours, issuing an executive order imposing a replacement 10% global tariff under Section 122 of the Trade Act of 1974, which was subsequently raised to 15% the following day. Section 122 tariffs are limited to 150 days and cannot be differentiated by country, constraining the administration’s ability to use them as negotiating leverage. The president also signaled the launch of a series of Section 301 investigations by the Office of the U.S. Trade Representative that could serve as the legal foundation for a more durable replacement tariff regime. The ruling has injected fresh uncertainty into more than a dozen trade agreements negotiated under the prior tariff framework with several trading partners. Additionally, the question of refunds for previously collected duties remains unresolved, with the administration signaling its intent to contest refund orders in court, a process that could extend for years.

Tech drove the narrative and volatility throughout the month. With the release of AI model enhancements, investors were reassessing software business risk, with some fearing the average company will be able to “vibe code” future software needs. Markets are funny, there is always overreaction on the up and on the down, but in the moment, it’s typically very difficult to assess where you are in the cycle. For decades, companies have focused on core competencies and outsourced much of the rest. We have a hard time believing that arrangement changes on a wide scale, but on the margin, individuals and companies are experimenting with what they can do. As a result, securities prices can swing widely based on what happens on the margin. Another observation we have made in the past weeks is that we can do a lot of plumbing ourselves, but choose not to because it’s not the best use of our time. We think software development is migrating toward that dynamic as the cost of developing software drops rapidly. We do believe that companies will use the threat of in-house development, or of two people in a garage building a replacement system, to negotiate pricing with software vendors. This feels like the most immediate threat to software businesses. Revenues, margins, and profitability will be pressured at a time when software companies are focusing more on AI and LLM usage, increasing their cost of goods sold (inference costs) and structurally reducing margins in software businesses. This is occurring even before competitive pressures from AI-native alternatives. Software comprises less than 1% of total jobs, something to keep in mind when thinking about the potential direct impact, though the potential indirect impacts could be far broader. The market is increasingly drawing a sharp line between mission-critical platforms with deep workflow integration and narrow point solutions vulnerable to AI displacement. This bifurcation drove much of the performance dispersion across markets during the month. Another element of this dynamic is that software expenditures are mainly a cost of doing business for other companies. A potential decline in software expenses could benefit margins and productivity in many other industries.

Markets with heavy tech and software exposures underperformed in February. Software ETFs were off -9.68% in the month, bringing YTD performance to down -22.82%. Private credit has roughly 20% invested in software loans. Business Development Companies, which are closed-end private credit funds that trade as a stock, were down -9.43%. The Mag 7 was down 6.52% in the month, bringing the Nasdaq return to -3.33%. Market technicians highlight this is a rotation out of tech and into the broader market as the S&P was down -0.76%, but excluding the Mag 7, performance was positive. Small caps were up +0.80%.

Broadly syndicated loans indices have 17% of the index in technology and 11% in software, was down -1.08%. High Yield, which has 5% tech and 3% software, was up +0.17%. Sentiment deteriorated in the US, helping rates to rally to below 4%, and treasuries posting a +2.75% return. Notably, a significant number of equity indices across the globe made all-time highs.

High Yield

High Yield saw less direct pressure given lower sector concentration in software names, but sentiment spillover from other areas of the market affected lower-rated technology issuers. HY returned +0.17% in February, with more rate-sensitive BBs outperforming +0.51%. Single-Bs were down -0.08% and CCCs lagged down -1.09%. Carry demand remained supportive of overall spreads, ending the month at 331 bps, up 31 bps in the month. BBs widened by 24 bps to 211 bps and CCCs widened the most at 79 bps to 962 bps. Yields remained below 7%, ending at 6.84%, and 10 bps higher than January. Dispersion within the index increased as investors became more selective about technology exposure at the single-name level. HY technology underperformed, losing -1.29%. Only three industries posted negative returns in the month. Energy was the outperformer, up +1.14%.

Loans & CLOs

Software exposure within CLO collateral created mark-to-market pressure during the month. Managers actively rotated exposure away from software and toward higher quality credits. Software produced weaker total returns relative to other loan sectors on a year-to-date basis. Larger managers tended to be the most overweight relative to the universe, as tech had grown to be the largest sector within the Loan indices at roughly 17%. Large software loan issuers dominate the leverage loan 100 index closer to 25%, even larger than the private credit and BDC estimates of 20%. Broadly syndicated loans were more sensitive to the AI debate than HY with the Loan index, declining 0.82%. Software-heavy credits experienced weakness and broader risk-off flows as investors reassessed the durability of seat-based pricing models. Index performance was dragged lower by the 17% concentration of technology names, and investors broadly struggled to differentiate between AI-resistant and AI-vulnerable business models within the software sub-sector, which comprises 11%. Refinancing discussions increasingly include AI defensibility as a core underwriting variable, with lenders seeking to understand which platforms can transition to usage-based monetization and which face structural headwinds from emerging AI alternatives.

The technology sector was down -2.71%, bringing year to date loan technology performance to -4.81%. Excluding technology, industry Loans were down -0.22% or 60bps higher. The sector with the highest outperformance in February was Chemicals up 2.22%. Similar to HY, returns by rating were positive correlated to quality with BBs down 0.03%. Single-Bs were down -1.07% and CCCs were down -2.67%. Yield for the loan market ended at 8.38%, 23bps higher during the month and 52bps higher year-to-date. Spreads ended the month at 526bps wider by46 bps in the month and 71 bps wider year-to-date.

All of Barrow Hanley Credit Partners’ funds, including CLOs, have been underweight technology and software for years. The main reasons were because software companies were the most aggressive with leverage and EBITDA adjustments. A particular pet peeve of ours was companies and sponsors adding deferred revenue to EBITDA, which is really a working capital item. We also consider the worst-case outcomes and what these companies and securities would look like in a restructuring or liquidation. If performance in these businesses deteriorated historically, it typically meant there was an efficacy problem with their products or services. Liquidation values tended to look extremely poor, and we believed this would ultimately influence trading prices. Liability demand for senior tranches stayed constructive. AAA demand in particular remained firm, reinforcing the distinction between collateral-level noise and structural credit risk within the CLO capital stack.

Private Credit

Following late-January NAV volatility at select BDCs, investors remained focused on portfolio marks and liquidity management throughout February. Software remains a large exposure within BDC portfolios, and investors are increasingly scrutinizing the valuation methodologies being applied to these positions. Funding markets remained open and several vehicles proactively raised capital. Liquidity actions and balance sheet management became focal discussion points on earnings calls and in investor meetings, with the market rewarding managers who demonstrated transparency and proactive positioning.

Returns as of February 28, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross0.000.717.7310.435.827.346.756.66
High Yield Composite Net-0.040.637.219.915.326.826.246.15
Bank Loan Composite Gross-0.73-0.405.699.407.08----6.43
Bank Loan Composite Net-0.77-0.485.168.866.55----5.90
Asset Class Month QTD YTD Index
HY Return0.17%0.65%0.65%ICE BAML HY Index
HY BB Return0.51%1.01%1.01%ICE BAML BB HY Index
HY B Return-0.08%0.42%0.42%ICE BAML B HY Index
HY CCC Return-1.09%-0.85%-0.85%ICE BAML CCC HY Index
Leveraged Loan Return-0.82%-1.08%-1.08%S&P UBS Leveraged Loan Index
LL BB Return-0.03%0.20%0.20%S&P UBS Leveraged Loan BB Index
LL B Return-1.07%-1.33%-1.33%S&P UBS Leveraged Loan B Index
LL CCC Return-2.67%-4.49%-4.49%S&P UBS Leveraged Loan CCC Index
HYG0.00%0.61%0.61%Ishares Iboxx High Yield
BKLN-2.07%-2.79%-2.79%Invesco Senior Loan ETF
S&P 500 Return-0.76%0.68%0.68%S&P 500
Russell 2000 Return0.80%6.20%6.20%Russell 2000 Index
10yr Beg4.24%4.17%4.17%10yr Treasury
10yr End3.94%3.94%3.94%10yr Treasury
10yr Return2.75%2.46%2.46%10yr Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW6.74%6.62%6.62%6.84%
HY BB YTW5.63%5.55%5.55%5.66%
HY B YTW6.94%6.78%6.78%7.17%
HY CCC YTW12.56%12.57%12.57%13.12%
HY STW300 bps296 bps296 bps331 bps
HY BB STW187 bps186 bps186 bps211 bps
HY B STW324 bps315 bps315 bps365 bps
HY CCC STW883 bps892 bps892 bps962 bps
LL YT3Y8.15%7.86%7.86%8.38%
LL BB YT3Y5.96%5.79%5.79%5.91%
LL B YT3Y7.71%7.42%7.42%8.01%
LL CCC YT3Y18.44%17.95%17.95%19.98%
LL ST3Y480 bps455 bps455 bps526 bps
LL BB ST3Y259 bps247 bps247 bps277 bps
LL B ST3Y435 bps410 bps410 bps488 bps
LL CCC ST3Y1516 bps1471 bps1471 bps1699 bps

Source: Barrow Hanley. Returns represent an asset-weighted composite of all Bank Loan Fixed Income portfolios or High Yield Fixed Income portfolios. Index returns are shown before transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Net-of-fee returns are calculated using a model fee. The model fee is based on a $100 million portfolio using our standard fee schedule. Past performance is not indicative of future results. Inception Date for Bank Loans is June 1, 2018. Inception Date for High Yield is January 1, 2005.

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ABOUT BARROW HANLEY GLOBAL INVESTORS

Barrow Hanley is a diversified investment management firm offering value-focused investment strategies spanning global equities and fixed income. Recognized as one of the few remaining firms dedicated exclusively to value investing, Barrow Hanley enjoys a boutique culture with a singular focus to assist clients in meeting their investment objectives. Today, Barrow  Hanley has approximately 100 employees, over half of which are investment professionals managing assets for our valued clients. Barrow Hanley stewards the capital of corporate, public, multi-employer pension plans, mutual funds, endowments and foundations, and sovereign wealth funds across North America, Europe, Asia, Australia and Africa. For further information, please visit www.barrowhanley.com.

General Disclosures:

All opinions included in this report constitute Barrow Hanley’s (BH) judgment as of the time of issuance of this report and are subject to change without notice. This report was prepared by Barrow Hanley with information it believes to be reliable. This report is for informational purposes only and is not intended to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security, nor a recommendation of services supplied by any money management organization. Past performance is not indicative of future results. Barrow Hanley is a value-oriented investment manager, providing services to institutional clients.

Barrow Hanley Credit Partners® is a legally assumed name for the Alternative Credit investment team and investment strategies of Barrow Hanley Global Investors®, including Bank Loan Fixed Income, Collateralized Loan Obligations, and High Yield Fixed Income.

These investment summaries are provided for informational purposes only and should not be viewed as representative of all investments by the firm. This report includes certain “forward-looking statements” including, but not limited to, BH’s plans, projections, objectives, expectations, and intentions and other statements contained herein that are not historical facts as well as statements identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, or words of similar meaning. Such statements and opinions contained are based on BH’s current beliefs or expectations and are subject to significant uncertainties and changes in circumstances, many beyond BH’s control. Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market, and regulatory factors. Additional information regarding the strategy is available upon request.

Index Disclosures:

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Credit Suisse Index data is permissible for use by Barrow Hanley for client reporting and marketing purposes. This data is not permitted to be re-distributed.

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Standard and Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC, and these trademarks have been licensed for use by S&P and Dow Jones Indices LLC and S&P Dow Jones Indices LLC. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Barrow Hanley. S&P Dow Jones Indices LLC is not responsible for the formatting or configuration of this material or for any inaccuracy in Barrow Hanley’s presentation thereof.

Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Barrow Hanley. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Barrow Hanley’s presentation thereof.

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www.barrowhanley.com

3.18.2026
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Market Recap

February extended January’s software theme: software is now the primary lens through which investors are underwriting risk. At the end of February, the US, Israel, and Iran conflict escalated into direct exchanges of military strikes across the region. This occurred after the last trading day in February, so we would expect March to start with elevated volatility.

On February 20, the Supreme Court struck down the IEEPA-based tariffs. The administration responded within hours, issuing an executive order imposing a replacement 10% global tariff under Section 122 of the Trade Act of 1974, which was subsequently raised to 15% the following day. Section 122 tariffs are limited to 150 days and cannot be differentiated by country, constraining the administration’s ability to use them as negotiating leverage. The president also signaled the launch of a series of Section 301 investigations by the Office of the U.S. Trade Representative that could serve as the legal foundation for a more durable replacement tariff regime. The ruling has injected fresh uncertainty into more than a dozen trade agreements negotiated under the prior tariff framework with several trading partners. Additionally, the question of refunds for previously collected duties remains unresolved, with the administration signaling its intent to contest refund orders in court, a process that could extend for years.

Tech drove the narrative and volatility throughout the month. With the release of AI model enhancements, investors were reassessing software business risk, with some fearing the average company will be able to “vibe code” future software needs. Markets are funny, there is always overreaction on the up and on the down, but in the moment, it’s typically very difficult to assess where you are in the cycle. For decades, companies have focused on core competencies and outsourced much of the rest. We have a hard time believing that arrangement changes on a wide scale, but on the margin, individuals and companies are experimenting with what they can do. As a result, securities prices can swing widely based on what happens on the margin. Another observation we have made in the past weeks is that we can do a lot of plumbing ourselves, but choose not to because it’s not the best use of our time. We think software development is migrating toward that dynamic as the cost of developing software drops rapidly. We do believe that companies will use the threat of in-house development, or of two people in a garage building a replacement system, to negotiate pricing with software vendors. This feels like the most immediate threat to software businesses. Revenues, margins, and profitability will be pressured at a time when software companies are focusing more on AI and LLM usage, increasing their cost of goods sold (inference costs) and structurally reducing margins in software businesses. This is occurring even before competitive pressures from AI-native alternatives. Software comprises less than 1% of total jobs, something to keep in mind when thinking about the potential direct impact, though the potential indirect impacts could be far broader. The market is increasingly drawing a sharp line between mission-critical platforms with deep workflow integration and narrow point solutions vulnerable to AI displacement. This bifurcation drove much of the performance dispersion across markets during the month. Another element of this dynamic is that software expenditures are mainly a cost of doing business for other companies. A potential decline in software expenses could benefit margins and productivity in many other industries.

Markets with heavy tech and software exposures underperformed in February. Software ETFs were off -9.68% in the month, bringing YTD performance to down -22.82%. Private credit has roughly 20% invested in software loans. Business Development Companies, which are closed-end private credit funds that trade as a stock, were down -9.43%. The Mag 7 was down 6.52% in the month, bringing the Nasdaq return to -3.33%. Market technicians highlight this is a rotation out of tech and into the broader market as the S&P was down -0.76%, but excluding the Mag 7, performance was positive. Small caps were up +0.80%.

Broadly syndicated loans indices have 17% of the index in technology and 11% in software, was down -1.08%. High Yield, which has 5% tech and 3% software, was up +0.17%. Sentiment deteriorated in the US, helping rates to rally to below 4%, and treasuries posting a +2.75% return. Notably, a significant number of equity indices across the globe made all-time highs.

High Yield

High Yield saw less direct pressure given lower sector concentration in software names, but sentiment spillover from other areas of the market affected lower-rated technology issuers. HY returned +0.17% in February, with more rate-sensitive BBs outperforming +0.51%. Single-Bs were down -0.08% and CCCs lagged down -1.09%. Carry demand remained supportive of overall spreads, ending the month at 331 bps, up 31 bps in the month. BBs widened by 24 bps to 211 bps and CCCs widened the most at 79 bps to 962 bps. Yields remained below 7%, ending at 6.84%, and 10 bps higher than January. Dispersion within the index increased as investors became more selective about technology exposure at the single-name level. HY technology underperformed, losing -1.29%. Only three industries posted negative returns in the month. Energy was the outperformer, up +1.14%.

Loans & CLOs

Software exposure within CLO collateral created mark-to-market pressure during the month. Managers actively rotated exposure away from software and toward higher quality credits. Software produced weaker total returns relative to other loan sectors on a year-to-date basis. Larger managers tended to be the most overweight relative to the universe, as tech had grown to be the largest sector within the Loan indices at roughly 17%. Large software loan issuers dominate the leverage loan 100 index closer to 25%, even larger than the private credit and BDC estimates of 20%. Broadly syndicated loans were more sensitive to the AI debate than HY with the Loan index, declining 0.82%. Software-heavy credits experienced weakness and broader risk-off flows as investors reassessed the durability of seat-based pricing models. Index performance was dragged lower by the 17% concentration of technology names, and investors broadly struggled to differentiate between AI-resistant and AI-vulnerable business models within the software sub-sector, which comprises 11%. Refinancing discussions increasingly include AI defensibility as a core underwriting variable, with lenders seeking to understand which platforms can transition to usage-based monetization and which face structural headwinds from emerging AI alternatives.

The technology sector was down -2.71%, bringing year to date loan technology performance to -4.81%. Excluding technology, industry Loans were down -0.22% or 60bps higher. The sector with the highest outperformance in February was Chemicals up 2.22%. Similar to HY, returns by rating were positive correlated to quality with BBs down 0.03%. Single-Bs were down -1.07% and CCCs were down -2.67%. Yield for the loan market ended at 8.38%, 23bps higher during the month and 52bps higher year-to-date. Spreads ended the month at 526bps wider by46 bps in the month and 71 bps wider year-to-date.

All of Barrow Hanley Credit Partners’ funds, including CLOs, have been underweight technology and software for years. The main reasons were because software companies were the most aggressive with leverage and EBITDA adjustments. A particular pet peeve of ours was companies and sponsors adding deferred revenue to EBITDA, which is really a working capital item. We also consider the worst-case outcomes and what these companies and securities would look like in a restructuring or liquidation. If performance in these businesses deteriorated historically, it typically meant there was an efficacy problem with their products or services. Liquidation values tended to look extremely poor, and we believed this would ultimately influence trading prices. Liability demand for senior tranches stayed constructive. AAA demand in particular remained firm, reinforcing the distinction between collateral-level noise and structural credit risk within the CLO capital stack.

Private Credit

Following late-January NAV volatility at select BDCs, investors remained focused on portfolio marks and liquidity management throughout February. Software remains a large exposure within BDC portfolios, and investors are increasingly scrutinizing the valuation methodologies being applied to these positions. Funding markets remained open and several vehicles proactively raised capital. Liquidity actions and balance sheet management became focal discussion points on earnings calls and in investor meetings, with the market rewarding managers who demonstrated transparency and proactive positioning.

Returns as of February 28, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross0.000.717.7310.435.827.346.756.66
High Yield Composite Net-0.040.637.219.915.326.826.246.15
Bank Loan Composite Gross-0.73-0.405.699.407.08----6.43
Bank Loan Composite Net-0.77-0.485.168.866.55----5.90
Asset Class Month QTD YTD Index
HY Return0.17%0.65%0.65%ICE BAML HY Index
HY BB Return0.51%1.01%1.01%ICE BAML BB HY Index
HY B Return-0.08%0.42%0.42%ICE BAML B HY Index
HY CCC Return-1.09%-0.85%-0.85%ICE BAML CCC HY Index
Leveraged Loan Return-0.82%-1.08%-1.08%S&P UBS Leveraged Loan Index
LL BB Return-0.03%0.20%0.20%S&P UBS Leveraged Loan BB Index
LL B Return-1.07%-1.33%-1.33%S&P UBS Leveraged Loan B Index
LL CCC Return-2.67%-4.49%-4.49%S&P UBS Leveraged Loan CCC Index
HYG0.00%0.61%0.61%Ishares Iboxx High Yield
BKLN-2.07%-2.79%-2.79%Invesco Senior Loan ETF
S&P 500 Return-0.76%0.68%0.68%S&P 500
Russell 2000 Return0.80%6.20%6.20%Russell 2000 Index
10yr Beg4.24%4.17%4.17%10yr Treasury
10yr End3.94%3.94%3.94%10yr Treasury
10yr Return2.75%2.46%2.46%10yr Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW6.74%6.62%6.62%6.84%
HY BB YTW5.63%5.55%5.55%5.66%
HY B YTW6.94%6.78%6.78%7.17%
HY CCC YTW12.56%12.57%12.57%13.12%
HY STW300 bps296 bps296 bps331 bps
HY BB STW187 bps186 bps186 bps211 bps
HY B STW324 bps315 bps315 bps365 bps
HY CCC STW883 bps892 bps892 bps962 bps
LL YT3Y8.15%7.86%7.86%8.38%
LL BB YT3Y5.96%5.79%5.79%5.91%
LL B YT3Y7.71%7.42%7.42%8.01%
LL CCC YT3Y18.44%17.95%17.95%19.98%
LL ST3Y480 bps455 bps455 bps526 bps
LL BB ST3Y259 bps247 bps247 bps277 bps
LL B ST3Y435 bps410 bps410 bps488 bps
LL CCC ST3Y1516 bps1471 bps1471 bps1699 bps

Source: Barrow Hanley. Returns represent an asset-weighted composite of all Bank Loan Fixed Income portfolios or High Yield Fixed Income portfolios. Index returns are shown before transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Net-of-fee returns are calculated using a model fee. The model fee is based on a $100 million portfolio using our standard fee schedule. Past performance is not indicative of future results. Inception Date for Bank Loans is June 1, 2018. Inception Date for High Yield is January 1, 2005.

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