M&A’s Quiet Resurgence: Why Leveraged Finance Is Poised for a Breakout as Dealmakers Return

If you blinked, you might have missed it. While everyone else was busy watching oil futures twitch and crypto traders chase the next liquidation cascade, something quietly shifted in the leveraged finance market. Catherine O’Donnell, JPMorgan’s head of leveraged finance for North America, just went on record expecting a pickup in M&A activity this year. For traders who’ve spent the last 18 months watching deal flow dry up like a puddle in Death Valley, this is the first real sign of life since the post-pandemic SPAC hangover.

The numbers don’t lie. After a brutal 2025, global M&A volumes are still down nearly 30% from their 2021 peak, according to Refinitiv. But the green shoots are there. Syndicated loan activity is ticking higher, high-yield issuance is no longer a punchline, and the private equity dry powder pile is now north of $2.5 trillion. The war in Iran and tariff noise have kept volatility elevated, but the real story is that dealmakers are getting off the sidelines.

O’Donnell’s comments, buried in a YouTube interview, are more than just jawboning. The leveraged finance desks at the big banks are seeing inbound calls from sponsors looking to lever up for the first time in a year. The bid-ask spread in loan markets is narrowing, and the cost of debt, while still elevated, is no longer prohibitive for the right deals.

Context is everything. The last M&A cycle was driven by cheap money and FOMO. This one is about necessity. Corporate earnings growth is slowing, organic expansion is stalling, and the only way to hit those double-digit EPS targets is to buy, merge, and cut costs. Private equity is under pressure to deploy capital before LPs revolt. The result? A wave of deals that are less about hype and more about survival.

The macro backdrop is a mixed bag. The Iran conflict and tariff standoffs have kept rates volatile, but the Fed’s pivot to a more data-dependent stance has stabilized the front end of the curve. That’s giving CFOs and dealmakers just enough confidence to dust off their M&A playbooks. The ISM manufacturing data shows expansion, not euphoria, but that’s enough for animal spirits to return to the credit markets.

What does this mean for traders? The leveraged finance market is the canary in the M&A coal mine. When deal flow picks up, so does demand for high-yield paper and leveraged loans. The market is already pricing in a modest rebound, but the real upside comes if deal volumes surprise to the upside. Watch for spikes in new issue volume and tightening spreads in the leveraged loan indices.

The risk, of course, is that macro shocks derail the recovery. If the Iran war escalates or tariffs bite harder, the cost of debt could spike and deals could get pulled. But for now, the path of least resistance is higher.

Strykr Watch

The technicals are lining up for a breakout in leveraged finance. Watch the volume of new high-yield and leveraged loan issuance. If weekly volumes break above $30 billion, that’s your signal that the M&A engine is revving up. Spreads on the S&P/LSTA Leveraged Loan Index are grinding tighter, and the bid-ask spread is the narrowest since early 2024.

On the equity side, keep an eye on the stocks of major investment banks and private equity firms. If deal fees start to climb, those names will outperform. For traders, the real tell will be the secondary market performance of recently issued loans. If they start trading above par, the risk appetite is back.

The risk is that the market gets ahead of itself. If deal volumes disappoint or macro shocks hit, the unwind could be fast and ugly. Keep stops tight and watch for signs of stress in the credit indices.

The opportunity is to position ahead of the crowd. Go long the leveraged finance ETFs and the stocks of banks with big M&A franchises. Short the laggards who missed the turn.

Strykr Take

The leveraged finance market is waking up, and the smart money is already positioning for a breakout. Don’t wait for the headlines, by the time CNBC catches on, the move will be over. This is the first real M&A cycle of the post-pandemic era. Trade it accordingly.