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Barrow Hanley Credit Partners Monthly Market Update | Energy Shock Drives Market Dislocation and Tests Credit Liquidity

In this post:

4.21.2026
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Executive Summary

  • Geopolitics drove a major energy shock, disrupting global supply chains, pushing oil sharply higher, and triggering broad- based losses across most asset classes.
  • Energy constraints are emerging as a potential limit on growth, with rising costs could begin to pressure AI investment, productivity, and the scalability of the asset-light model.
  • Credit markets showed early signs of stress and transition, as private credit faced its first liquidity test.

Market Recap

March 2026 was dominated by the onset of the Iran war and its cascading effects across global markets. Operation Epic Fury, the joint US-Israeli military campaign launched February 28th, killed Supreme Leader Ayatollah Ali Khamenei and triggered Iran’s effective closure of the Straight of Hormuz by early March. The resulting oil supply disruption, described by the International Energy Agency (IEA) as the largest in the history of the global oil market, sent oil prices north of $120/bbl at its peak before settling around $100/bbl for much of the month. With roughly 20% of global seaborne oil trade and significant LNG volumes stranded, Gulf oil production fell by at least 10 million barrels per day, more than 3,000 vessels were stranded in the Persian Gulf, and QatarEnergy declared force majeure on all gas exports. The US and IEA member countries released 400 million barrels from strategic petroleum reserves, the largest coordinated release on record, and temporary lifted sanctions on some Russian oil. By month- end, the war was entering its fourth week with no clear resolution, and it is difficult to believe headlines about talks to end the war.

Against this backdrop, which echoed the cross-asset dislocation seen on “Liberation Day,” similarities, March returns delivered broad-based losses across nearly every major asset class except for commodities and loans. The S&P 500 fell 4.98% and the Nasdaq declined 4.68%. The 10-year Treasury yield rose nearly 50bps intra-month before ending at 4.32%, up 38bps for the month, driving a -2.50% return. Investment grade corporates declined 1.98%, while high yield fared better, down 1.19%.

The notable standout was Leveraged Loans, up 0.61%, marking a sharp recovery following the AI-induced plunge at the start of the year. Loan prices stabilized and rallied as the floating- rate asset class benefited from rising rate expectations. 2026 year-end Fed funds target rate expectations increased by more than 50bps during the month, with markets no longer expecting rate cuts.

Across the globe, consumers are facing higher fuel costs. Crack spreads continue to widen and refinery capacity remains offline in war zones. Diesel and jet fuel markets look particularly vulnerable to an extended loss of Middle East production. Certain Asian countries are attempting to reduce demand through limits on commuting activity and other measures. The Middle East also exports roughly one-third of the world’s helium, critical for chip production, as well as substantial volumes of sulfuric acid needed used in iron ore processing and natural gas feedstock for fertilizer and LNG. All are facing significant disruption.

Notably, US natural gas prices have not risen in tandem with oil as they have globally, supported by domestic production. European benchmarks Dutch TTF futures roughly doubled before pulling back, while US consumers face the shock primarily through higher gasoline prices.

March and the first quarter of this year brought into focus a structural thesis that has been building: the asset-light model of the last two decades has run its course. The Mag 7 companies that defined that era are spending billions to build infrastructure, including power generation and energy supply for AI. They are doing something outside their core competency, deploying engineering, labor, and machines at massive scale. These companies are no longer infinitely scalable and must allocate a larger share of cash flow to capital investment, which may lead to a re-rating of their cash flow profiles.

Without structural reforms to the economy, particularly energy supply, we are reaching the limits of the system. Running AI agents constantly burn through energy and upstream resources at a faster pace than human capital. Recent estimates place the annual cost of AI at approximately $100k per agent, meaning AI-assisted developers need to be at least twice as productive to justify their additional cost. AI agents also waste energy researching and validating tasks that do not require it, for example, creating subagents for simple workflows, which continues to drive up associated energy demand.

A Reuters “Breaking Views” analysis highlighted the 1970s parallel. Annual growth in output per worker ran above 3% in the US in the 1960s, but oil shocks reduced that to 0.4% between 1977 and 1982. Today, a comparable shock would likely force companies to scale back AI rollout programs. An OECD paper found that each 10% spike in energy prices reduces labor productivity by 1%, with severe shocks having a persistent negative effect. If the Iran crisis becomes protracted, the risk is that energy costs force a structural slowdown in AI investment, the very catalyst the market has priced in forward earnings growth.

High Yield

High Yield suffered its steepest monthly loss since late 2023, down -1.19%. HY Yields increased 60bps to 7.44%, comprised of 42bps from higher Treasury rates and 18bps of widening spread. Spreads ended the month at 349bps. Not a surprise given the rate rise that BBs underperformed the most, returning -1.38% for the rating cohort. CCCs were also weak, returning -1.37%. Single- Bs were the outperformer by a significant margin down 0.79%. Energy outperformed, losing -0.09% while Consumer Products underperformed, down -2.96%.

The HY market enters this period of stress from an increasing position of strength. BBs continue to increase as a percentage of the HY market, now a record level of 58.8%, while CCCs are at historically low levels at 9%. Since the COVID pandemic, corporate debt-to-equity ratios have decreased while interest coverage ratios are elevated at levels not seen since 1960.

Loans & CLOs

Loans reversed their earlier underperformance in the year to dramatically outperform in March returning +0.61%. The March recovery reflects several factors. First, the AI disruption panic appears to have overshot on the downside indiscriminately, creating value in dislocated tech loans. Second, rising rate expectations driven by energy and inflation fears benefited floating rate assets. Third, most loans are issued from borrowers that have been good corporate stewards. We can see this in year-to-returns, where BB Loans have materially outperformed the index returning +0.64%. Single-Bs are down -0.41%, while CCCs down -4.2%. For March, Single-Bs bounced back the most up +0.93%, BB Loans were up +0.44%, and CCC Loans were positive +0.30%. Industries outperforming in March were Financials up +1.28%, followed by Technology +1.15%, while Housing and Building products were the underperformer down -1.23%.

Private Credit

March 2026 will be remembered as the month that Private Credit faced its first major liquidity test at scale. A majority of Private Credit funds experienced redemption requests that outpaced what their repurchase mechanics could satisfy in a single quarter and in many cases funds exercised their right to gate investors. Instances of firms marking positions to zero from par contributed to concerns. A November 2025 Bloomberg article resurfaced during the month in which a senior DOJ official raised concerns about increasingly divergent valuation practices in private markets.

A critical development we have highlighted in these letters occurred in December 2025, when the OCC and FDIC formally rescinded the 2013 Leveraged Lending Guidelines, stating that the guidance was overly restrictive and had driven lending activity outside the regulatory perimeter to private credit providers. Banks now have meaningfully greater flexibility to underwrite leveraged loans according to their own risk appetites and capital constraints. They are estimated to hold $200bn in excess capital and could be a liquidity provider to private credit managers, likely at a steep cost. This also creates conditions for banks to recapture market share from private credit providers.

Returns as of March 31, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross -0.86% -0.22% 8.15% 9.97% 5.49% 6.86% 6.69% 6.59%
High Yield Composite Net -0.90% -0.34% 7.64% 9.45% 4.99% 6.35% 6.18% 6.08%
Bank Loan Composite Gross 0.58% 0.10% 6.57% 9.52% 7.18% -- -- 6.42%
Bank Loan Composite Net 0.54% -0.03% 6.04% 8.98% 6.65% -- -- 5.89%
Asset Class Month QTD YTD Index
HY Return-1.19%-0.55%-0.55%ICE BAML HY Index
HY BB Return-1.38%-0.38%-0.38%ICE BAML BB HY Index
HY B Return-0.79%-0.38%-0.38%ICE BAML B HY Index
HY CCC Return-1.37%-2.21%-2.21%ICE BAML CCC HY Index
Leveraged Loan Return0.61%-0.47%-0.47%S&P UBS Leveraged Loan Index
LL BB Return0.44%0.64%0.64%S&P UBS Leveraged Loan BB Index
LL B Return0.93%-0.41%-0.41%S&P UBS Leveraged Loan B Index
LL CCC Return0.30%-4.20%-4.20%S&P UBS Leveraged Loan CCC Index
HYG0.95%-0.35%-0.35%Ishares Iboxx High Yield
BKLN1.56%-1.27%-1.27%Invesco Senior Loan ETF
S&P 500 Return-4.98%-4.33%-4.33%S&P 500
Russell 2000 Return-5.00%0.89%0.89%Russell 2000 Index
10yr Beg3.94%4.17%4.17%10yr Treasury
10yr End4.32%4.32%4.32%10yr Treasury
10yr Return-2.50%-0.11%-0.11%10yr Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW6.84%6.62%6.62%7.44%
HY BB YTW5.66%5.55%5.55%6.25%
HY B YTW7.17%6.78%6.78%7.77%
HY CCC YTW13.12%12.57%12.57%13.95%
HY STW331 bps296 bps296 bps349 bps
HY BB STW211 bps186 bps186 bps229 bps
HY B STW365 bps315 bps315 bps386 bps
HY CCC STW962 bps892 bps892 bps1004 bps
LL YT3Y8.38%7.86%7.86%8.70%
LL BB YT3Y5.91%5.79%5.79%6.31%
LL B YT3Y8.01%7.42%7.42%8.34%
LL CCC YT3Y19.98%17.95%17.95%20.41%
LL ST3Y526 bps455 bps455 bps514 bps
LL BB ST3Y277 bps247 bps247 bps275 bps
LL B ST3Y488 bps410 bps410 bps477 bps
LL CCC ST3Y1699 bps1471 bps1471 bps1689 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 us- ing 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 perfor- mance 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.

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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 materi- al, 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.

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www.barrowhanley.com

4.21.2026
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Market Recap

March 2026 was dominated by the onset of the Iran war and its cascading effects across global markets. Operation Epic Fury, the joint US-Israeli military campaign launched February 28th, killed Supreme Leader Ayatollah Ali Khamenei and triggered Iran’s effective closure of the Straight of Hormuz by early March. The resulting oil supply disruption, described by the International Energy Agency (IEA) as the largest in the history of the global oil market, sent oil prices north of $120/bbl at its peak before settling around $100/bbl for much of the month. With roughly 20% of global seaborne oil trade and significant LNG volumes stranded, Gulf oil production fell by at least 10 million barrels per day, more than 3,000 vessels were stranded in the Persian Gulf, and QatarEnergy declared force majeure on all gas exports. The US and IEA member countries released 400 million barrels from strategic petroleum reserves, the largest coordinated release on record, and temporary lifted sanctions on some Russian oil. By month- end, the war was entering its fourth week with no clear resolution, and it is difficult to believe headlines about talks to end the war.

Against this backdrop, which echoed the cross-asset dislocation seen on “Liberation Day,” similarities, March returns delivered broad-based losses across nearly every major asset class except for commodities and loans. The S&P 500 fell 4.98% and the Nasdaq declined 4.68%. The 10-year Treasury yield rose nearly 50bps intra-month before ending at 4.32%, up 38bps for the month, driving a -2.50% return. Investment grade corporates declined 1.98%, while high yield fared better, down 1.19%.

The notable standout was Leveraged Loans, up 0.61%, marking a sharp recovery following the AI-induced plunge at the start of the year. Loan prices stabilized and rallied as the floating- rate asset class benefited from rising rate expectations. 2026 year-end Fed funds target rate expectations increased by more than 50bps during the month, with markets no longer expecting rate cuts.

Across the globe, consumers are facing higher fuel costs. Crack spreads continue to widen and refinery capacity remains offline in war zones. Diesel and jet fuel markets look particularly vulnerable to an extended loss of Middle East production. Certain Asian countries are attempting to reduce demand through limits on commuting activity and other measures. The Middle East also exports roughly one-third of the world’s helium, critical for chip production, as well as substantial volumes of sulfuric acid needed used in iron ore processing and natural gas feedstock for fertilizer and LNG. All are facing significant disruption.

Notably, US natural gas prices have not risen in tandem with oil as they have globally, supported by domestic production. European benchmarks Dutch TTF futures roughly doubled before pulling back, while US consumers face the shock primarily through higher gasoline prices.

March and the first quarter of this year brought into focus a structural thesis that has been building: the asset-light model of the last two decades has run its course. The Mag 7 companies that defined that era are spending billions to build infrastructure, including power generation and energy supply for AI. They are doing something outside their core competency, deploying engineering, labor, and machines at massive scale. These companies are no longer infinitely scalable and must allocate a larger share of cash flow to capital investment, which may lead to a re-rating of their cash flow profiles.

Without structural reforms to the economy, particularly energy supply, we are reaching the limits of the system. Running AI agents constantly burn through energy and upstream resources at a faster pace than human capital. Recent estimates place the annual cost of AI at approximately $100k per agent, meaning AI-assisted developers need to be at least twice as productive to justify their additional cost. AI agents also waste energy researching and validating tasks that do not require it, for example, creating subagents for simple workflows, which continues to drive up associated energy demand.

A Reuters “Breaking Views” analysis highlighted the 1970s parallel. Annual growth in output per worker ran above 3% in the US in the 1960s, but oil shocks reduced that to 0.4% between 1977 and 1982. Today, a comparable shock would likely force companies to scale back AI rollout programs. An OECD paper found that each 10% spike in energy prices reduces labor productivity by 1%, with severe shocks having a persistent negative effect. If the Iran crisis becomes protracted, the risk is that energy costs force a structural slowdown in AI investment, the very catalyst the market has priced in forward earnings growth.

High Yield

High Yield suffered its steepest monthly loss since late 2023, down -1.19%. HY Yields increased 60bps to 7.44%, comprised of 42bps from higher Treasury rates and 18bps of widening spread. Spreads ended the month at 349bps. Not a surprise given the rate rise that BBs underperformed the most, returning -1.38% for the rating cohort. CCCs were also weak, returning -1.37%. Single- Bs were the outperformer by a significant margin down 0.79%. Energy outperformed, losing -0.09% while Consumer Products underperformed, down -2.96%.

The HY market enters this period of stress from an increasing position of strength. BBs continue to increase as a percentage of the HY market, now a record level of 58.8%, while CCCs are at historically low levels at 9%. Since the COVID pandemic, corporate debt-to-equity ratios have decreased while interest coverage ratios are elevated at levels not seen since 1960.

Loans & CLOs

Loans reversed their earlier underperformance in the year to dramatically outperform in March returning +0.61%. The March recovery reflects several factors. First, the AI disruption panic appears to have overshot on the downside indiscriminately, creating value in dislocated tech loans. Second, rising rate expectations driven by energy and inflation fears benefited floating rate assets. Third, most loans are issued from borrowers that have been good corporate stewards. We can see this in year-to-returns, where BB Loans have materially outperformed the index returning +0.64%. Single-Bs are down -0.41%, while CCCs down -4.2%. For March, Single-Bs bounced back the most up +0.93%, BB Loans were up +0.44%, and CCC Loans were positive +0.30%. Industries outperforming in March were Financials up +1.28%, followed by Technology +1.15%, while Housing and Building products were the underperformer down -1.23%.

Private Credit

March 2026 will be remembered as the month that Private Credit faced its first major liquidity test at scale. A majority of Private Credit funds experienced redemption requests that outpaced what their repurchase mechanics could satisfy in a single quarter and in many cases funds exercised their right to gate investors. Instances of firms marking positions to zero from par contributed to concerns. A November 2025 Bloomberg article resurfaced during the month in which a senior DOJ official raised concerns about increasingly divergent valuation practices in private markets.

A critical development we have highlighted in these letters occurred in December 2025, when the OCC and FDIC formally rescinded the 2013 Leveraged Lending Guidelines, stating that the guidance was overly restrictive and had driven lending activity outside the regulatory perimeter to private credit providers. Banks now have meaningfully greater flexibility to underwrite leveraged loans according to their own risk appetites and capital constraints. They are estimated to hold $200bn in excess capital and could be a liquidity provider to private credit managers, likely at a steep cost. This also creates conditions for banks to recapture market share from private credit providers.

Returns as of March 31, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross -0.86% -0.22% 8.15% 9.97% 5.49% 6.86% 6.69% 6.59%
High Yield Composite Net -0.90% -0.34% 7.64% 9.45% 4.99% 6.35% 6.18% 6.08%
Bank Loan Composite Gross 0.58% 0.10% 6.57% 9.52% 7.18% -- -- 6.42%
Bank Loan Composite Net 0.54% -0.03% 6.04% 8.98% 6.65% -- -- 5.89%
Asset Class Month QTD YTD Index
HY Return-1.19%-0.55%-0.55%ICE BAML HY Index
HY BB Return-1.38%-0.38%-0.38%ICE BAML BB HY Index
HY B Return-0.79%-0.38%-0.38%ICE BAML B HY Index
HY CCC Return-1.37%-2.21%-2.21%ICE BAML CCC HY Index
Leveraged Loan Return0.61%-0.47%-0.47%S&P UBS Leveraged Loan Index
LL BB Return0.44%0.64%0.64%S&P UBS Leveraged Loan BB Index
LL B Return0.93%-0.41%-0.41%S&P UBS Leveraged Loan B Index
LL CCC Return0.30%-4.20%-4.20%S&P UBS Leveraged Loan CCC Index
HYG0.95%-0.35%-0.35%Ishares Iboxx High Yield
BKLN1.56%-1.27%-1.27%Invesco Senior Loan ETF
S&P 500 Return-4.98%-4.33%-4.33%S&P 500
Russell 2000 Return-5.00%0.89%0.89%Russell 2000 Index
10yr Beg3.94%4.17%4.17%10yr Treasury
10yr End4.32%4.32%4.32%10yr Treasury
10yr Return-2.50%-0.11%-0.11%10yr Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW6.84%6.62%6.62%7.44%
HY BB YTW5.66%5.55%5.55%6.25%
HY B YTW7.17%6.78%6.78%7.77%
HY CCC YTW13.12%12.57%12.57%13.95%
HY STW331 bps296 bps296 bps349 bps
HY BB STW211 bps186 bps186 bps229 bps
HY B STW365 bps315 bps315 bps386 bps
HY CCC STW962 bps892 bps892 bps1004 bps
LL YT3Y8.38%7.86%7.86%8.70%
LL BB YT3Y5.91%5.79%5.79%6.31%
LL B YT3Y8.01%7.42%7.42%8.34%
LL CCC YT3Y19.98%17.95%17.95%20.41%
LL ST3Y526 bps455 bps455 bps514 bps
LL BB ST3Y277 bps247 bps247 bps275 bps
LL B ST3Y488 bps410 bps410 bps477 bps
LL CCC ST3Y1699 bps1471 bps1471 bps1689 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 us- ing 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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