The credit market is no longer one unified landscape. Increasingly, institutional allocators face a split between public credit—bonds traded on liquid markets—and private credit, which includes direct loans, middle-market financing, and structured deals. And right now, their yield curves tell very different stories.

But what causes this divergence?

Public Credit: Transparent but Volatile

Public credit instruments, like investment-grade or high-yield corporate bonds, respond quickly to macro shifts, rate changes, and sentiment. Yields can spike due to liquidity concerns, market volatility, or Fed policy. Pricing is visible and mark-to-market daily.

This transparency is a double-edged sword: it brings liquidity but also market noise.

Private Credit: Yield Stability, But at a Cost

Private credit, by contrast, often offers:

• Higher nominal yields due to illiquidity premiums
• More stable marks (since assets aren’t marked daily)
• Greater control via covenants or bespoke terms

But the catch? It’s harder to exit. There’s less price discovery. And in times of stress, cracks in underwriting may go unnoticed until its too late.

When the Curves Diverge

At times, the private credit curve can remain flat or stable even as public credit sells off. That divergence can arise from:

• Delayed risk recognition in private markets
• Overly optimistic valuations by managers
• Institutional “stickiness” in private portfolios

Yet sometimes, private credit signals genuine opportunity — capturing spread in ways public markets can’t. The challenge is knowing which signal to trust.

How to Interpret the Split

Heres a simple diagnostic framework:

Bottom Line

Private and public credit markets don’t always move together—and that divergence holds both risk and opportunity. Smart allocators analyze not just yield, but timing, structure, and liquidity constraints.

Because in credit, price is just one input. Context is everything.