While M&A activity appeared to drive strong loan activity at the outset of the year, the United States’ war in Iran has led to “volatility and uncertainty” in the credit market in the first quarter, according to a recent report from KPMG.
Researchers at the Big Four firm revealed that new-issue leveraged loan volume in 2026’s first quarter hit $173.3 billion, which was up from the prior quarter’s mark of $138.1 billion but down year over year from $195.1 billion.
“Geopolitical shocks, oil-price volatility, and persistent uncertainty could continue to disrupt risk appetite and drive episodic market pauses,” KPMG officials wrote in the report, which was published March 31.
At the same time, though, lending for mergers and acquisitions appeared to be a bright spot in the quarter. Per the report, M&A-backed institutional loans hit $74.6 billion in the first quarter, which KPMG officials said was the highest level since the first quarter of 2022, when such loans reached $94.4 billion.
“A strong start to 2026, riding on increased M&A-backed issuance, turned significantly weaker in March as investor sentiment deteriorated due to war in the Middle East and diminishing rate cuts expectations,” the report stated.
M&A-backed loans also comprised nearly half (46%) of institutional loan volume, the report stated.
“M&A-driven issuance continues to support primary-market activity, with megadeals sustaining deal flow despite broader volatility,” the report said. “Market access remains open for high quality issuers across leveraged loans, high yield, and direct lending, enabling borrowers to raise capital for acquisitions and growth.”
The report noted that high-yield bond issuance totaled nearly $80 billion in 2026’s first quarter, with an average yield of 7.08%. The market for such bonds started “strong,” the report said, before softening due to the war in Iran.
Despite a dip toward the end of the sector, M&A activity may well tick up over the rest of the year. A recent survey of CFOs and other finance leaders by U.S. Bank, for instance, showed that just about half of respondents said they’re more likely to make acquisitions over the next year than they were in the prior one.
But risks remain, and they could constrain or derail such activity. In a report issued Tuesday, S&P Global analysts said the “potential for systemic risk is rising due to increasing interconnections between market participants, more complex assets and structures that introduce new leverage into the system, and the rising use of semi-liquid investment vehicles.”
