US CREDIT UPDATE: MNI BDC (Business Development Corporation) Sector Review-Q3'25

• Stocks extend lows late Wednesday - the Nasdaq leading the decline as longs took profits ahead of the Christmas & New Years holidays. Currently, the DJIA trades down 153.34 points (-0.32%) at 47956.34, S&P E-Mini Futures down 65.75 points (-0.96%) at 6791, Nasdaq down 339.6 points (-1.5%) at 22771.63.
• Information Technology, Communication Services and Industrials sector shares continued to lead declines in the second half: Lam Research -5.10%, Oracle -5.04%, Broadcom -4.95%, Advanced Micro Devices -4.86%, Super Micro Computer -4.71%, Palantir Technologies -4.64%, Western Digital -4.51% and Dell Technologies -4.27%.
  • Merger/acquisitions continued to make headlines as Paramount Skydance trade down -4.08% after Jared Kushner's private equity firm pulled out of the hostile takeover bid for Warner Brothers, the latter also down 2.04%. Warner executives implored investors to reject the $108B Paramount bid, calling it "illusory" in favor of Netflix's superior offer.
  • GE Vernova -8.80%, Quanta Services -5.55%, EMCOR Group -4.84%, Generac Holdings -4.78%, Caterpillar -4.77% and Eaton Corp -4.68% weighed on the Industrials sector.
• On the positive side, Energy and Consumer Staples sector shares outperformed in the first half:
  • Texas Pacific Land +6.05% after signing an agreement with Bolt Data to build data centers, followed by: ConocoPhillips +3.96%, Devon Energy +3.85%, Occidental Petroleum +3.37%, Targa Resources +2.60% and Diamondback Energy +1.94%.
  • Meanwhile, General Mills +2.87%, Church & Dwight Co +2.64%, Kroger +2.38%, Clorox +1.99%, Procter & Gamble +1.88% and Hormel Foods +1.48% buoyed the Consumer Staples sector in the first half.

• The Eurozone unemployment rate was higher than expected in October at 6.4% in the single monthly update since the October meeting, unchanged after an upward revised 6.4% September (initially 6.3%).
• Revisions have been a theme over the past year, and generally to the upside, with this year’s low currently seen at 6.3% in multiple months vs an initially reported 6.1% in February for example.
• A 6.4% rate is still clearly historically low however, up from the series low of 6.2% in Nov 2024 before broadly moving sideways since then.
• The unemployment rate for those aged 25 years and above tells a broadly similar story at 5.5% for a third consecutive month versus series lows of 5.4% through most of 2H24.
• Back to latest data, the level of unemployment was a little more encouraging as it decreased slightly by 13k after two monthly increases.

• Meanwhile, revisions to the ECB wage tracker, released as usual the Wednesday after the ECB decision, saw a marginal upward revision for negotiated wages ex one-off payments for 4Q25 from 3.13% to 3.15% Y/Y.
• New projections for 3Q26 point to this ex one-off payment metric easing to 2.37% Y/Y after a projected 2.49% Y/Y in 2Q26.
• The wage tracker has generally seen marginal upward revisions over time (note the case in the prior September update) although these projections should continue to give the ECB confidence that wage-driven inflationary pressures remain on a disinflationary trajectory.
• That was especially so after realized negotiated wages growth subsequently surprised lower in Q3 at 1.87% Y/Y vs consensus of 2.45%.
• However, this was more recently countered by the December national accounts update showing far stronger than expected compensation per employees growth of 4.0% Y/Y in Q3, unchanged from 4.0% in Q2 vs the ECB’s forecast of a moderation to 3.2%. 

MBA mortgage application activity softened slightly in the latest week, but the more notable trend in recent weeks has been a continued narrowing of mortgage rate spreads.

• The MBA composite fell 3.8% W/W in the week of Dec 12, partially reversing the 4.8% rise the previous week but keeping activity at the overall subdued levels seen since late 2023 (at 1/3 below pre-pandemic levels). Purchase applications fell 2.8% for a 2nd consecutive fall, while refinancing apps pulled back 3.6% after soaring 14.3% the prior week.
• This pullback came as 30Y conforming mortgage rates ticked up, by 5bp to 6.38% for a 3-week high; Jumbo rates dipped 2bp after a 6bp rise the prior week.
• But this was due to a rise in underlying rates. 10Y Treasury yields averaged 7bp higher than the prior week (4.17% after 4.09%) with 30Y up 6bp (4.81% after 4.75%), with 10Y swaps up 8bp (3.76% after 3.68%).
• As such, mortgage spreads continued to fall. Conforming 30Y mortgage spreads to 10Y fell to 221bp and to 30Y to 157bp with spreads to 10Y swaps at 261bp, all the lowest since early 2022.