Private credit's weakest borrowers are starting to crack.
When a company is too strained to pay interest in cash, it tacks the interest onto the loan instead. That is PIK, and lenders charge extra for it because only the shakiest borrowers need it.
Now look at the split. Yields… pic.twitter.com/OuwXX6zfnM
— Kurt S. Altrichter, CRPS® (@kurtsaltrichter) September 2, 2026
This is the kind of thing I would watch before worrying about the stock market.
You don’t need a wave of defaults yet.
If the good borrowers are getting cheaper while lenders demand more money to finance the weak ones, the credit market is already separating winners from losers.
And software keeps showing up in the weak bucket.
That’s important because private credit doesn’t need to blow up tomorrow for this to matter. If lenders keep demanding higher yields and more protection, refinancing gets harder, weaker companies start using more PIK, and eventually some of those loans stop paying altogether.
Stocks can ignore that for a while. Credit usually doesn’t.
US private credit firms just marked down more loans
Reuters analyzed 44 BDCs and found aggregate fair value fell from 99.25% of cost at the end of 2025 to 97.57% by June 2026.
More importantly, non-accrual loans jumped from 2.5% to 3.4% of portfolio cost.
And software is getting hammered: 81% of software loans were marked down, compared with 40% in other sectors.
Software is becoming the weak spot inside private credit
The Reuters analysis found that a relatively small group of struggling borrowers was responsible for much of the Q2 damage.
Blue Owl, Ares Capital, Golub Capital and FS KKR Capital all reported meaningful unrealized losses tied to software investments.
This is important because software is a huge part of BDC portfolios.
Boston Fed says rising PIK usage can be an early warning
The Boston Fed has been specifically tracking PIK usage across BDC portfolios.
Its warning is pretty straightforward: when borrowers increasingly use PIK, it can indicate they don’t have enough cash flow to service their debt normally.
Fitch says US private credit default rate hit a new high
Fitch reported another increase in the private credit default rate during Q2.
The important part is that stressed maturity extensions are also showing up. Some borrowers aren’t outright blowing up yet. They’re getting their lenders to give them more time.
A key shift is happening in the Japanese yield curve.
Yesterday, Japan’s 10Y yield hit 3% for the first time since 1996.
But the more important signal started in early July:
The 2Y yield began rising faster than the 10Y.
That flattening tells us the market is increasingly… pic.twitter.com/RhM9Ni7vWf
— Macro Liquidity by Sunil Reddy (@Macrobysunil) September 2, 2026