Tracking Q3 2025 Credit Market

3.75% Now, 5.4% Later? Default Risk Builds as Spec-Grade Weakens Beneath the Surface.

Note: This newsletter contains information for educational purposes only, and the content below should not be considered financial advice to readers. We published a brand new short recommendation for our clients. If you would like to become our client, email laks@unicusresearch.com.

Sources for this analysis are shared at the end.

As Q3 begins, speculative-grade cracks are widening. While markets cling to calm spreads, S&P forecasts U.S. defaults will rise to 3.75% by March 2026, potentially 5.4% under stress. Downgrades are outpacing upgrades, distressed exchanges are piling up, and pressure is building in consumer, chemical, and media credits. Here’s what’s shifting under the surface.

Defaults Rise, Outlooks Darken, But Markets Stay Complacent

North America’s credit environment is entering Q3 not with a bang, but a slow, grinding erosion. The top-level signals, positive GDP growth, modest inflation, and a resilient labor market, create a false sense of security. Beneath that surface, however, speculative-grade debt is fraying. Downgrades are accelerating, sector-level outlooks have darkened further, and default events, particularly through distressed exchanges, are accumulating.

As S&P frames it: "There are more downside risks than upside."

The result is a bifurcated market: while investment-grade names are holding steady, thanks to deep liquidity and longer-dated liabilities, the lower end of the credit spectrum is buckling. Any macro or policy jolt, be it tariffs, rates, or political volatility, could tip that fragility into disorder.