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Barrow Hanley Credit Partners Monthly Market Update | Resilient Credit, Rising Yields, and an AI Reality Check

In this post:

7.21.2026
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Executive Summary

  • Markets largely looked through geopolitical volatility as resilient corporate fundamental continued to outweigh macro uncertainty
  • The economics of AI could be entering a new phase with investors increasingly focused on durability and long-term returns rather than headline growth
  • Higher for longer rates pushed loan yields to nearly 9%, while strong corporate earnings continued to support healthy leveraged loan credit fundamentals

Market Recap

June was a volatile month even though most asset classes posted small headline gains. The month began shaky amid continued tensions in the Iran conflict. Mid-month, the imminent peace deal was solidified in a Memorandum of Understanding (MOU), to which markets reacted positively. The peace deal was quickly called into question with Iran striking a Singaporean-flagged vessel in the Strait of Hormuz and the U.S. dropping additional bombs in response.

The AI narrative began to show some cracks. The Mag 7 traded off almost 9% during the month, with Microsoft down over 17%. Alphabet raised over $80 billion in equity early in the month, sparking debate over whether the raise was designed to pull liquidity away from competitors and whether other hyperscalers would follow with equity raises of their own. Then SpaceX's IPO hit the market, raising $86 billion, the largest IPO on record by a factor of three. The market is now anticipating potential IPOs from OpenAI and Anthropic, which could set records of their own. Share buybacks and the growth of private equity have driven net equity redemptions for much of the past two decades, but 2026 could mark the first year of positive net equity supply since 2003. If all these large IPOs happen, then 2027 could see heightened volatility as lockups on newly listed shares expire and trading volumes increase.

Underneath the capital-raising story, the economics of AI usage are shifting quickly. In late 2025, AI companies moved from flat-rate subscription pricing toward per-token billing. Even as per-token costs have trended downward, usage exploded in 2026 as many companies actively encouraged AI adoption internally, in some cases building token-usage leaderboards. Now that the bills have arrived, many of those same companies are working to rein in usage and force efficiency in model selection. Uber's CTO noted on a podcast that the company burned through its entire 2026 AI budget in four months. Meanwhile, Chinese models, not far behind the U.S. frontier versions, are winning token share, filling 4 of the top 5 spots by usage and accounting for 85.7% of combined top-5 token volume, according to aicost.org. The cost gap is stark: MiniMax M2.5 prices at roughly $0.30 per million input tokens and $1.20 output, versus $5 and $25 for Claude Opus, a 15-20x differential. Yet on SWE-bench Verified, a widely cited coding benchmark, MiniMax M2.5 scored 80.2% against Claude Opus's 80.8%, a gap of well under a point despite the massive cost difference. These are exactly the data points the market will use to assess whether the revenue growth behind U.S. AI companies' capital raises is durable, and what it implies for their ultimate enterprise value.

Kevin Warsh chaired his first meeting as Fed Chair and made a notable splash at his press conference. The Fed held rates steady but signaled the possibility of hikes to contain inflation. Warsh is looking to change how the Fed communicates with markets, moving away from forward guidance and encouraging markets to respond to incoming data rather than anticipate the Fed's next move. This shift increases the information content of each data release and raises the risk of higher rate volatility. The Dot Plot, itself under review, showed 9 of 18 members projecting at least one rate hike in 2026; Warsh did not submit a dot of his own. Fed funds expectations have moved sharply since the start of the year, from two priced-in rate cuts to two priced-in rate hikes today, flattening the yield curve. The 10-year/2- year spread stands at 26bps as of quarter-end, down from 69bps in January. Rates have risen across the curve, with the 10-year up 21bps year-to-date to 4.38% and the 2-year up 64bps to 4.12%.

High Yield

High Yield generated +0.26% return in June. The month started with the asset class declining 37bps at the lows until President Trump announced the U.S. was canceling planned strikes against Iran and a peace deal was imminent. HY rallied to +30bps by mid-month and held that gain even after Iran struck a containership in the Strait of Hormuz late in the month and the U.S. responded with force, a reminder that credit spreads shrugged off geopolitical escalation that would have been a bigger story in a less technically supported market.

Single-Bs outperformed with a +0.33% return, BBs posted +0.24%, and CCCs lagged at +0.16%. CCC have consistently underperformed, up just +0.14% year-to-date vs +1.89% for the index, +1.84% for BBs and +2.45% for Single-Bs. Yields rose 14bps in June to end at +7.15%, up from +6.64% to start the year. Spreads were 3bps higher in the month to 294bps, showing the monthly yield move was largely rates-driven, and that’s true for the full year as well. Yields are higher by 51 bps year-to-date driven by rates, with spreads 2bps tighter. Within sectors, Packaging was the outperformer, up +1.41% and Technology was the laggard at -0.39%.

Strategas published a note this month highlighting that the significant improvement in HY credit quality warrants a re- evaluation of fair value for spreads. While their model is proprietary, their adjustments suggest fair value should be 246bps. If the quality adjustment thesis holds, it implies room for further spread compression, if not it may simply reflect the market pricing risks (geopolitical, single-name) that a spread model built on aggregate quality metrics doesn’t fully capture.

Loans

Loans were positive by +0.13% in June, continuing the low- volatility profile that has defined the asset class for the past several years. Yields ended the month at +8.93%, up 20bps, driven by 13bps of spread widening to 500bps and 7 bps from rates. Year-to-date, yields are up a surprising 107bps, split between 45bps of spread widening and 62bps from rates.

Within ratings, loans behaved the opposite of HY this month: where HY CCCs lagged, Loan CCCs led, up +0.40%, ahead of BBs at +0.27%, and Single-Bs were flat. Loan CCCs remain down -3.05% YTD versus +1.46% for Single-Bs and +2.29% for BBs. By industry, Technology again underperformed -1.13%, while Consumer industries led with Durables up +1.24% and Non-Durables up +0.96%.

Private Credit

Redemption pressure across the non-traded private credit complex remained the dominant storyline in June, though the picture continues to be more nuanced than the sector-wide “crisis” framing that has circulated the press. Cliffwater’s flagship Corporate Lending Fund capped second-quarter redemptions at 5% after investors sought to pull roughly 17% of shares, returning about one-third of requested capital – a modest sequential deterioration from the prior quarter, when the fund fulfilled about half of a 14% request under a 7% cap. Ares Strategic Income Fund and Apollo’s Debt Solutions Fund both gated at the standard 5% threshold after redemption requests of 11.6% and 11.2% respectively. Blue Owl’s vehicles saw a request of nearly 22% against their 5% cap. Blackstone’s BCRED was the outlier, absorbing 7.9% of assets without gating after the firm injected $400mm of its own capital alongside executive money to fulfill redemptions. FSOC voted to publish guidance on non-bank financial company designations, shifting towards activities-based oversight explicitly aimed at the “Bermuda Triangle” structures connecting banks, insurers, and private credit vehicles, a development we are watching closely given our work on covenant and LME assessments.

Apollo announced they are partnering with ICE to launch ICE Private Credit Intelligence, ingesting deal documents, extracting and standardizing key terms and distributing data. Apollo also said it expects 100% of their credit assets will be marked daily. It will be interesting if others follow suit as one of the big draws for private credit have been the lack of volatility which daily marks would undoubted increase dramatically. Both are early signs of the public / private convergence we have flagged in prior letters.

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross 0.34% 2.89% 6.84% 10.01% 5.55% 6.78% 6.88% 6.65%
High Yield Composite Net 0.31% 2.78% 6.35% 9.50% 5.05% 6.28% 6.37% 6.14%
Bank Loan Composite Gross 0.28% 2.12% 6.33% 9.02% 7.26% - - 6.49%
Bank Loan Composite Net 0.27% 2.02% 5.83% 8.49% 6.73% - - 5.97%
Asset Class Month QTD YTD Index
HY Return 0.26% 2.45% 1.89% ICE BAML HY Index
HY BB Return 0.24% 2.23% 1.84% ICE BAML BB HY Index
HY B Return 0.33% 2.84% 2.45% ICE BAML B HY Index
HY CCC Return 0.16% 2.40% 0.14% ICE BAML CCC HY Index
Leveraged Loan Return 0.13% 1.85% 1.36% S&P UBS Leveraged Loan Index
LL BB Return 0.27% 1.64% 2.29% S&P UBS Leveraged Loan BB Index
LL B Return 0.00% 1.88% 1.46% S&P UBS Leveraged Loan B Index
LL CCC Return 0.40% 1.20% -3.05% S&P UBS Leveraged Loan CCC Index
HYG 0.09% 2.05% 1.69% iShares iBoxx High Yield
BKLN 0.01% 1.31% 0.02% Invesco Senior Loan ETF
S&P 500 Return -0.95% 15.20% 10.21% S&P 500
Russell 2000 Return 3.74% 21.49% 22.57% Russell 2000 Index
10 Year Beg 4.44% 4.32% 4.17% 10 Year Treasury
10 Year End 4.47% 4.47% 4.47% 10 Year Treasury
10 Year Return 0.33% -2.39% 0.02% 10 Year Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW 7.01% 7.44% 6.62% 7.15%
HY BB YTW 5.93% 6.25% 5.55% 6.07%
HY B YTW 7.25% 7.77% 6.78% 7.34%
HY CCC YTW 13.53% 13.95% 12.57% 13.95%
HY STW 291 bps 349 bps 296 bps 294 bps
HY BB STW 182 bps 229 bps 186 bps 186 bps
HY B STW 318 bps 386 bps 315 bps 315 bps
HY CCC STW 945 bps 1004 bps 892 bps 978 bps
LL YT3Y 8.73% 8.70% 7.86% 8.93%
LL BB YT3Y 6.42% 6.31% 5.79% 6.59%
LL B YT3Y 8.35% 8.34% 7.42% 8.63%
LL CCC YT3Y 20.93% 20.41% 17.95% 21.04%
LL ST3Y 487 bps 514 bps 455 bps 500 bps
LL BB ST3Y 256 bps 275 bps 247 bps 266 bps
LL B ST3Y 449 bps 477 bps 410 bps 469 bps
LL CCC ST3Y 1705 bps 1689 bps 1471 bps 1708 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.

Merrill Lynch index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its Third Party Suppliers and has been licensed for use by Barrow Hanley Global Investors. ICE Data and its Third Party Suppliers accept no liability in connection with its use.

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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7.21.2026
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Market Recap

June was a volatile month even though most asset classes posted small headline gains. The month began shaky amid continued tensions in the Iran conflict. Mid-month, the imminent peace deal was solidified in a Memorandum of Understanding (MOU), to which markets reacted positively. The peace deal was quickly called into question with Iran striking a Singaporean-flagged vessel in the Strait of Hormuz and the U.S. dropping additional bombs in response.

The AI narrative began to show some cracks. The Mag 7 traded off almost 9% during the month, with Microsoft down over 17%. Alphabet raised over $80 billion in equity early in the month, sparking debate over whether the raise was designed to pull liquidity away from competitors and whether other hyperscalers would follow with equity raises of their own. Then SpaceX's IPO hit the market, raising $86 billion, the largest IPO on record by a factor of three. The market is now anticipating potential IPOs from OpenAI and Anthropic, which could set records of their own. Share buybacks and the growth of private equity have driven net equity redemptions for much of the past two decades, but 2026 could mark the first year of positive net equity supply since 2003. If all these large IPOs happen, then 2027 could see heightened volatility as lockups on newly listed shares expire and trading volumes increase.

Underneath the capital-raising story, the economics of AI usage are shifting quickly. In late 2025, AI companies moved from flat-rate subscription pricing toward per-token billing. Even as per-token costs have trended downward, usage exploded in 2026 as many companies actively encouraged AI adoption internally, in some cases building token-usage leaderboards. Now that the bills have arrived, many of those same companies are working to rein in usage and force efficiency in model selection. Uber's CTO noted on a podcast that the company burned through its entire 2026 AI budget in four months. Meanwhile, Chinese models, not far behind the U.S. frontier versions, are winning token share, filling 4 of the top 5 spots by usage and accounting for 85.7% of combined top-5 token volume, according to aicost.org. The cost gap is stark: MiniMax M2.5 prices at roughly $0.30 per million input tokens and $1.20 output, versus $5 and $25 for Claude Opus, a 15-20x differential. Yet on SWE-bench Verified, a widely cited coding benchmark, MiniMax M2.5 scored 80.2% against Claude Opus's 80.8%, a gap of well under a point despite the massive cost difference. These are exactly the data points the market will use to assess whether the revenue growth behind U.S. AI companies' capital raises is durable, and what it implies for their ultimate enterprise value.

Kevin Warsh chaired his first meeting as Fed Chair and made a notable splash at his press conference. The Fed held rates steady but signaled the possibility of hikes to contain inflation. Warsh is looking to change how the Fed communicates with markets, moving away from forward guidance and encouraging markets to respond to incoming data rather than anticipate the Fed's next move. This shift increases the information content of each data release and raises the risk of higher rate volatility. The Dot Plot, itself under review, showed 9 of 18 members projecting at least one rate hike in 2026; Warsh did not submit a dot of his own. Fed funds expectations have moved sharply since the start of the year, from two priced-in rate cuts to two priced-in rate hikes today, flattening the yield curve. The 10-year/2- year spread stands at 26bps as of quarter-end, down from 69bps in January. Rates have risen across the curve, with the 10-year up 21bps year-to-date to 4.38% and the 2-year up 64bps to 4.12%.

High Yield

High Yield generated +0.26% return in June. The month started with the asset class declining 37bps at the lows until President Trump announced the U.S. was canceling planned strikes against Iran and a peace deal was imminent. HY rallied to +30bps by mid-month and held that gain even after Iran struck a containership in the Strait of Hormuz late in the month and the U.S. responded with force, a reminder that credit spreads shrugged off geopolitical escalation that would have been a bigger story in a less technically supported market.

Single-Bs outperformed with a +0.33% return, BBs posted +0.24%, and CCCs lagged at +0.16%. CCC have consistently underperformed, up just +0.14% year-to-date vs +1.89% for the index, +1.84% for BBs and +2.45% for Single-Bs. Yields rose 14bps in June to end at +7.15%, up from +6.64% to start the year. Spreads were 3bps higher in the month to 294bps, showing the monthly yield move was largely rates-driven, and that’s true for the full year as well. Yields are higher by 51 bps year-to-date driven by rates, with spreads 2bps tighter. Within sectors, Packaging was the outperformer, up +1.41% and Technology was the laggard at -0.39%.

Strategas published a note this month highlighting that the significant improvement in HY credit quality warrants a re- evaluation of fair value for spreads. While their model is proprietary, their adjustments suggest fair value should be 246bps. If the quality adjustment thesis holds, it implies room for further spread compression, if not it may simply reflect the market pricing risks (geopolitical, single-name) that a spread model built on aggregate quality metrics doesn’t fully capture.

Loans

Loans were positive by +0.13% in June, continuing the low- volatility profile that has defined the asset class for the past several years. Yields ended the month at +8.93%, up 20bps, driven by 13bps of spread widening to 500bps and 7 bps from rates. Year-to-date, yields are up a surprising 107bps, split between 45bps of spread widening and 62bps from rates.

Within ratings, loans behaved the opposite of HY this month: where HY CCCs lagged, Loan CCCs led, up +0.40%, ahead of BBs at +0.27%, and Single-Bs were flat. Loan CCCs remain down -3.05% YTD versus +1.46% for Single-Bs and +2.29% for BBs. By industry, Technology again underperformed -1.13%, while Consumer industries led with Durables up +1.24% and Non-Durables up +0.96%.

Private Credit

Redemption pressure across the non-traded private credit complex remained the dominant storyline in June, though the picture continues to be more nuanced than the sector-wide “crisis” framing that has circulated the press. Cliffwater’s flagship Corporate Lending Fund capped second-quarter redemptions at 5% after investors sought to pull roughly 17% of shares, returning about one-third of requested capital – a modest sequential deterioration from the prior quarter, when the fund fulfilled about half of a 14% request under a 7% cap. Ares Strategic Income Fund and Apollo’s Debt Solutions Fund both gated at the standard 5% threshold after redemption requests of 11.6% and 11.2% respectively. Blue Owl’s vehicles saw a request of nearly 22% against their 5% cap. Blackstone’s BCRED was the outlier, absorbing 7.9% of assets without gating after the firm injected $400mm of its own capital alongside executive money to fulfill redemptions. FSOC voted to publish guidance on non-bank financial company designations, shifting towards activities-based oversight explicitly aimed at the “Bermuda Triangle” structures connecting banks, insurers, and private credit vehicles, a development we are watching closely given our work on covenant and LME assessments.

Apollo announced they are partnering with ICE to launch ICE Private Credit Intelligence, ingesting deal documents, extracting and standardizing key terms and distributing data. Apollo also said it expects 100% of their credit assets will be marked daily. It will be interesting if others follow suit as one of the big draws for private credit have been the lack of volatility which daily marks would undoubted increase dramatically. Both are early signs of the public / private convergence we have flagged in prior letters.

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross 0.34% 2.89% 6.84% 10.01% 5.55% 6.78% 6.88% 6.65%
High Yield Composite Net 0.31% 2.78% 6.35% 9.50% 5.05% 6.28% 6.37% 6.14%
Bank Loan Composite Gross 0.28% 2.12% 6.33% 9.02% 7.26% - - 6.49%
Bank Loan Composite Net 0.27% 2.02% 5.83% 8.49% 6.73% - - 5.97%
Asset Class Month QTD YTD Index
HY Return 0.26% 2.45% 1.89% ICE BAML HY Index
HY BB Return 0.24% 2.23% 1.84% ICE BAML BB HY Index
HY B Return 0.33% 2.84% 2.45% ICE BAML B HY Index
HY CCC Return 0.16% 2.40% 0.14% ICE BAML CCC HY Index
Leveraged Loan Return 0.13% 1.85% 1.36% S&P UBS Leveraged Loan Index
LL BB Return 0.27% 1.64% 2.29% S&P UBS Leveraged Loan BB Index
LL B Return 0.00% 1.88% 1.46% S&P UBS Leveraged Loan B Index
LL CCC Return 0.40% 1.20% -3.05% S&P UBS Leveraged Loan CCC Index
HYG 0.09% 2.05% 1.69% iShares iBoxx High Yield
BKLN 0.01% 1.31% 0.02% Invesco Senior Loan ETF
S&P 500 Return -0.95% 15.20% 10.21% S&P 500
Russell 2000 Return 3.74% 21.49% 22.57% Russell 2000 Index
10 Year Beg 4.44% 4.32% 4.17% 10 Year Treasury
10 Year End 4.47% 4.47% 4.47% 10 Year Treasury
10 Year Return 0.33% -2.39% 0.02% 10 Year Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW 7.01% 7.44% 6.62% 7.15%
HY BB YTW 5.93% 6.25% 5.55% 6.07%
HY B YTW 7.25% 7.77% 6.78% 7.34%
HY CCC YTW 13.53% 13.95% 12.57% 13.95%
HY STW 291 bps 349 bps 296 bps 294 bps
HY BB STW 182 bps 229 bps 186 bps 186 bps
HY B STW 318 bps 386 bps 315 bps 315 bps
HY CCC STW 945 bps 1004 bps 892 bps 978 bps
LL YT3Y 8.73% 8.70% 7.86% 8.93%
LL BB YT3Y 6.42% 6.31% 5.79% 6.59%
LL B YT3Y 8.35% 8.34% 7.42% 8.63%
LL CCC YT3Y 20.93% 20.41% 17.95% 21.04%
LL ST3Y 487 bps 514 bps 455 bps 500 bps
LL BB ST3Y 256 bps 275 bps 247 bps 266 bps
LL B ST3Y 449 bps 477 bps 410 bps 469 bps
LL CCC ST3Y 1705 bps 1689 bps 1471 bps 1708 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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