Schroders asks whether private-credit stress could transmit to public credit markets

Any spillover from stress in private credit would reach public markets mainly through banks rather than through bondholders directly, according to Schroders.

It said systemic risks from private credit are low, that direct and indirect public-market exposure to it is low, and that the exposure which does exist is of higher quality than in the private credit space itself. On that basis, Schroders said the issue is not a systemic problem for public markets.

Where spillover risk to the economy and public markets would be greatest, it said, is via the banking sector. Though it added that banks are in better shape, and that implausibly bad assumptions on defaults and recovery rates would be needed to put the sector in difficulty.