A Discussion Of What Is Actually Driving The Rebound In U.S. Capital Markets
Equity Capital Markets – a much sharper rebound than people expected
U.S. ECM has rebounded far more sharply than most anticipated after the slowdown in 2022–23. Issuance in 2025 is basically back in line with long-term averages, which is important because it shows this isn’t just a one-off window opening — activity is normalising. A couple of successful IPOs, like Reddit and Lineage Logistics, helped restore confidence. They demonstrated that deals can be priced sensibly and actually perform in the aftermarket, which was the key thing missing for nearly two years.
The macro backdrop has also been doing a lot of the heavy lifting. The Fed’s pivot towards rate cuts, combined with broadly stable economic conditions, has supported risk appetite. Lower yields mean the opportunity cost of equity is falling, and investors who had been sitting in cash or short-duration credit are gradually moving back towards risk.
One thing that stands out is the significant level of sponsor backing for ECM this year. Many of the largest IPOs were private-equity exits, which makes sense given the amount of dry powder sitting on the sidelines — roughly $2.6 trillion globally. PE portfolios built up during the high-rate period now finally have an environment where valuations and liquidity make exits possible again.
Looking into 2026, the outlook remains constructive. There is a large backlog of delayed IPOs across tech and industrials waiting for slightly lower rates. If the Fed lowers rates to around 3% in 2026, that should be supportive of issuance volumes. The only real uncertainty is political. The threat of an additional 100% “Trump Tariff” on Chinese imports could act as a temporary drag if implemented, especially if it pushes inflation higher and slows the pace of rate cuts. For now, though, this risk isn’t fully priced in.
Debt markets – IG is extremely strong, HY is still selective
The credit side tells a slightly different story. Investment-grade issuance is very strong, close to record highs, and spreads are the tightest in 27 years. This mostly comes down to ample liquidity and strong demand for higher-quality credit. Investors like the yield on IG right now because it offers a good risk-adjusted return without having to dip into the riskier parts of the market.
High yield and LevFin look less convincing. With IG spreads already offering a pretty attractive pickup, HY is providing limited additional upside but carries significantly higher downside. As a result, issuance has been more selective. Some deals get done, but the market isn’t fully open.
The biggest story on the debt side is actually the U.S. Treasury market. Fiscal deficits remain large, and the government has been issuing a huge amount of long-maturity T-bonds. At the same time, quantitative tightening means there are fewer natural buyers. More supply + lower demand = higher term premium, which is why long-term yields are still sitting around 4% even though the Fed is cutting. This is why the yield curve, which had been inverted for a long time, is now steepening. Short-term yields are falling with rate cuts, but long-end yields are sticky because of debt, inflation concerns, and the sheer volume of issuance.
Private credit – still expanding
Similar to the UK, private credit continues to grow in the U.S. even as public markets improve. A lot of companies still prefer negotiating directly with private lenders because it’s faster and more flexible, especially for larger or more complex transactions. This trend doesn’t look cyclical anymore — it is becoming a permanent part of the funding landscape.
Fed policy – inflation moving in the right direction
The Fed has now cut rates by 25bp, taking the funds range to 3.75–4%. Inflation is at 3%, still above target but moving steadily lower. The temporary summer increase was mainly tariff-related, which the Fed treated as a supply-side shock rather than a sign of re-acceleration.
Growth momentum is also fading, and the labour market is slowing, which gives the Fed more room to cut. Long-term expectations remain anchored around 2%, so the central bank can afford to prioritise employment without risking a major credibility problem.
Ganguly, S. (2025). US Treasury curve to steepen on Fed easing bets, fiscal strain: Reuters poll. Reuters, 10 September 2025. https://www.reuters.com/business/us-treasury-curve-steepen-fed-easing-bets-fiscal-strain-2025-09-10/
Lawder, D. (2025). Fed’s Powell says he expects to see more tariff-driven price hikes in coming months. Reuters, 18 June 2025. https://www.reuters.com/business/feds-powell-says-he-expects-see-more-tariff-driven-price-hikes-coming-months-2025-06-18/
Macquarie Group (2025). Private credit market set for significant growth in 2025. Macquarie Insights, 26 March 2025. (Quote from Bill Eckmann, Head of Private Credit, Americas.) https://www.macquarie.com/us/en/insights/private-credit-market-set-for-significant-growth-in-2025.html
Morgan Stanley (2025). A Comeback for IPOs and Equity Capital Markets. Morgan Stanley Insights, 29 July 2025. https://www.morganstanley.com/insights/articles/ipo-outlook-2025
Mutikani, L. (2025). US inflation warms up in June as tariffs boost some goods prices. Reuters, 31 July 2025. https://www.reuters.com/world/us/us-inflation-warms-up-june-tariffs-boost-some-goods-prices-2025-07-31/
Nishant, N. & Saini, M. (2025). Factbox: Hot or not? How recent high-profile US IPOs have performed. Reuters, 28 March 2025. https://www.reuters.com/markets/us/hot-or-not-how-recent-high-profile-us-ipos-have-performed-2025-06-12/
Nishant, N. & Wang, E. (2024). Reddit shares end trading up 48% in market debut. Reuters, 21 March 2024. https://www.reuters.com/markets/deals/reddit-set-hotly-anticipated-debut-after-pricing-ipo-top-range-2024-03-21/
Saphir, A. & Derby, M.S. (2025). Still early to assess tariff impact on economy, Fed report says. Reuters, 20 June 2025. https://www.reuters.com/business/still-early-assess-tariff-impact-economy-fed-report-says-2025-06-20/
Tracy, M. (2025). Companies tap US bond market for nearly $70 billion, starting September on a busy note. Reuters, 5 September 2025. https://www.reuters.com/business/companies-tap-us-bond-market-nearly-70-billion-starting-september-busy-note-2025-09-05/
Wang, E. (2024). Logistics giant Lineage raises $4.44 bln in biggest IPO of 2024. Reuters, 25 July 2024. https://www.reuters.com/markets/deals/logistics-giant-lineage-raises-445-bln-biggest-ipo-2024-2024-07-24/