MW A toxic mix of private-credit panic and climbing bond yields is hammering financial stocks

By Joseph Adinolfi

The financial sector is the worst performer in the S&P 500 this week as redemption requests collide with the Iran conflict

A private-credit panic has picked up steam this week.

A toxic brew of climbing bond yields and a broadening panic about the stability of private-credit lenders has helped push the S&P 500 financial-services sector to its lowest level since last May.

A steady drumbeat of ominous headlines about alternative lenders shielding their funds from surging redemption requests has heaped more pressure on shares of Blue Owl $(OWL)$, Blackstone (BX), KKR $(KKR)$ and other alternative asset managers. Shares of these lenders already had been struggling for the better part of a year, but more recently, shares of Morgan Stanley $(MS)$, JPMorgan Chase $(JPM)$, Goldman Sachs $(GS)$ and other big banks also have come under pressure. The firms didn't immediately respond to requests for comment.

Investors are beginning to worry that a wave of redemptions and feared markdowns in the private-credit space could rebound on the banks that themselves lent money to those lenders. Banks also have been navigating the tumult unleashed by the Iran conflict in the $30 trillion Treasury market.

Yields on short-dated Treasury notes have shot higher as investors dial back expectations for more Federal Reserve interest-rate cuts in 2026. Yields tied to longer-dated U.S. government bonds have also risen, though not as quickly. A flatter "yield curve" can create problems for banks.

The yield on the 2-year Treasury note BX:TMUBMUSD02Y gained 12.6 basis points to 3.759% on Thursday, its biggest one-day gain since May 2, 2025, Dow Jones Market Data showed. The 10-year yield was 4.272%.

A flatter yield curve cuts into banks' lending margins. A simple way to think about the issue is that banks look to earn more from lending longer term than what they pay their customers on deposits. When the spread between the two rates is compressed, banks earn less.

"When investors see names like JPMorgan and BlackRock getting a bit concerned about these types of assets, you have to wonder, do other investors get spooked?" said Steve Sosnick, chief strategist at Interactive Brokers.

The S&P 500 financial-services sector is down 3.5% this week, as of Thursday's close - the worst performing sector in the S&P 500 SPX, according to FactSet data. The State Street Financial Select Sector SPDR ETF XLF, which aims to track the performance of S&P 500 financial stocks, closed Thursday at $48.81, after falling 1.6%. That was the lowest finish for the ETF since May 1, Dow Jones Market Data showed.

As more financial-services names were swept up in the selling, shares of regional banks actually outperformed on Thursday, with the State Street SPDR Regional Bank ETF KRE falling by just 0.8%.

Sosnick chalked this up to the fact that regional lenders aren't as exposed to private credit.

The conflict in Iran loomed in the background, threatening to put more pressure on lenders if investors look to pull their money from the market in greater numbers.

What's more, investors are increasingly looking for liquidity after the conflict sparked a surge in oil prices and increased market volatility, said Morris DeFeo, co-chair of the corporate department at New York law firm Herrick and chair of its funds practice, in a phone interview. "People start looking at their portfolio and say, 'I've got liquidity concerns, and where am I going to be able to find a way to get out?'"

Christine Idzelis contributed

-Joseph Adinolfi

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March 12, 2026 18:31 ET (22:31 GMT)

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