September jobs data stuns markets as private credit declares traditional investing “broken”
The week ending September 7, 2025 delivered a seismic shift in middle market lending conditions as August employment data shocked markets with just 22,000 jobs created versus 75,000 expected — the weakest reading since December 2020. This dramatic miss virtually guarantees Federal Reserve rate cuts beginning September 17, setting the stage for lower borrowing costs across the middle market just as Apollo CEO Marc Rowan declared the traditional 60-40 portfolio model “broken” and obsolete in favor of private credit solutions. The convergence of these forces — weakening economic fundamentals, imminent monetary easing, and institutional capital’s accelerating shift toward alternative lending — created unprecedented dynamics in middle market finance during this pivotal week.
The employment report’s implications rippled immediately through credit markets. Treasury yields plummeted approximately 9 basis points during the week to 4.08% – 4.10%, while corporate bond spreads remained near historic tights at 77 – 83 basis points over Treasuries. September 2 witnessed the third-largest single-day investment-grade issuance in history at $43.3 billion, as corporate treasurers rushed to lock in financing ahead of potential market volatility. For middle market borrowers, the combination of anticipated Fed cuts and fierce competition between direct lenders and banks has pushed all-in borrowing costs down to 7.5% – 8.0%, with further compression expected as SOFR rates decline from current levels around 4.41%.
Private credit ascendancy accelerates amid traditional banking retreat
Apollo Global Management’s Marc Rowan delivered perhaps the week’s most provocative commentary in a September 2 CNBC interview, arguing that passive investing and index concentration have rendered traditional portfolio construction obsolete. With Apollo, Blackstone, and KKR collectively managing over $2.6 trillion — quadruple their holdings from a decade ago — Rowan positioned private credit as the inevitable successor to public markets. He highlighted Meta’s recent $29 billion private credit deal and cited Air France, AB InBev, Intel, and AT&T as blue-chip borrowers now choosing Apollo over traditional banks, suggesting the private credit market could expand from $1.5 trillion to $40 trillion if investment-grade lending is included.
Supporting this thesis, Blackstone Private Credit Fund (BCRED) successfully issued $500 million in five-year investment-grade notes on September 3, priced at just 160 basis points over Treasuries — demonstrating institutional investors’ comfort with BDC credit risk. Meanwhile, Oaktree Capital Management announced its Asia Pacific expansion with the September 2 hiring of Roger Zhang from Granite Asia to lead a new private debt strategy targeting high-single to low-teen returns. The broader BDC sector maintained dividend distributions despite some coverage pressure, with PennantPark Floating Rate Capital declaring a $0.1025 monthly distribution yielding approximately 12.08% while simultaneously announcing a $250 million portfolio acquisition on September 2.
The asset-based lending market demonstrated similar momentum, growing from $785.6 billion in 2024 to $896.12 billion in 2025 — a remarkable 14.1% compound annual growth rate. Wells Fargo Capital Finance maintained its position as the second-largest left lead arranger of syndicated ABL loans with $76 billion in total commitments, while strategic partnerships proliferated across the sector. Apollo and BNP Paribas launched a $5 billion joint venture for investment-grade asset-backed credit, Sixth Street partnered with Affirm Holdings to invest up to $4 billion in asset-backed loans, and Wells Fargo joined Centerbridge to form a business development company targeting $5 billion in capital for middle market deals.
Regulatory environment embraces digital assets while maintaining oversight
The regulatory landscape shifted decisively toward accommodation during the week, particularly in digital asset services. U.S. Bancorp’s September 3 announcement that it would restart bitcoin custody services for institutional investment managers marked a watershed moment, enabled by the SEC’s withdrawal of Staff Accounting Bulletin 121 which had required banks to report crypto assets as on-balance-sheet liabilities. All three federal banking agencies have now withdrawn crypto guidance requiring pre-approval for digital asset activities, with FDIC Acting Chairman Travis Hill indicating ongoing work to provide clarity on permissible activities.
The Commodity Futures Trading Commission’s September 5 enforcement actions reflected this more business-friendly approach, imposing $8.3 million in total penalties across six major banks — significantly lower than Biden-era sanctions for similar violations. UBS received the largest penalty at $5 million for trade surveillance failures, while BNY Mellon, Santander, and SMBC each paid $500,000 for off-channel WhatsApp communications. Acting Chair Caroline Pham characterized these settlements as part of an “enforcement sprint” to clear non-fraud compliance backlogs, signaling a shift from punitive to pragmatic regulatory oversight.
State-level developments added complexity to the compliance landscape. The Consumer Financial Protection Bureau determined that commercial financing disclosure laws in New York, California, Utah, and Virginia are not preempted by federal Truth in Lending Act requirements, enhancing transparency obligations for middle market lenders in these jurisdictions. Additionally, the implementation timeline for small business lending data collection under Section 1071 continues approaching, with Tier 1 institutions required to begin collection by July 18, 2025.
Equipment finance and specialty lending expand capacity
Gordon Brothers’ September announcement of a $1.5 billion joint venture with Davidson Kempner Capital Management, supported by a Wells Fargo Capital Finance lending facility, significantly expanded middle market equipment financing capacity. The partnership targets construction, manufacturing, and transportation sectors — industries particularly affected by trade uncertainties but essential to economic infrastructure. Complementing this expansion, Rosenthal Capital Group appointed Jeff Biesiada as Senior Business Development Officer for its Equipment Finance Division effective September 2, bringing over 20 years of commercial finance expertise to build relationships across the Mid-West and East Coast markets.
The supply chain finance market demonstrated robust growth trajectory, expanding from $12.47 billion in 2024 to a projected $13.48 billion in 2025 at an 8.1% compound annual growth rate. The reverse factoring segment showed even more dramatic expansion, valued at $695.45 billion in 2025 with projections to exceed $2.38 trillion by 2037. These growth rates reflect businesses’ increasing reliance on working capital optimization as traditional bank lending remains constrained and economic uncertainty persists.
Private equity firms addressed their own liquidity challenges through innovative fund structures. Goldman Sachs Asset Management’s September 3 announcement of a $10 billion liquidity fund to assist cash-strapped PE firms highlighted the industry’s struggle to return capital to investors amid muted M&A and IPO markets. HSBC Asset Management launched a new private equity strategy on September 3 targeting wealthy clients with minimum investments as low as $25,000, democratizing access to alternatives while providing PE firms with additional capital sources. Apollo’s planned $5 billion sports-focused investment fund, announced during the week, exemplifies the sector’s push into specialized strategies as traditional buyout opportunities become scarce.
Credit markets signal continued accommodation despite economic uncertainty
The CLO market maintained remarkable momentum with expectations for AAA pricing to reach 3-month SOFR plus 110 basis points in the first half of 2025 — 15 – 20 basis points tighter than end-2024 levels. Secondary loan markets showed similar strength with 82% of loans trading at 99 or above, indicating robust investor demand despite economic headwinds. CLO ETFs continued attracting inflows, now representing 2% – 3% of the total market and providing additional liquidity for middle market loan investments.
Rating agencies offered cautiously optimistic outlooks despite the employment weakness. Moody’s expects speculative-grade defaults to decline to 2.6% in the U.S. by October 2025, while S&P Global noted that investment-grade corporate credit rating upgrades exceeded downgrades by a 3:1 ratio in 2024. These metrics suggest fundamental corporate health remains intact despite labor market deterioration, supporting continued lending activity even as economic growth moderates.
The forward curve implies SOFR rates declining 25 – 50 basis points by year-end 2025, which would reduce middle market borrowing costs to potentially below 7.5% all-in yields. Combined with approximately $9 trillion in global private credit dry powder and intensifying competition between direct lenders and banks, borrowers enjoy unprecedented negotiating leverage. Covenant flexibility has expanded markedly, with leverage ratios stable around 4.5x debt/EBITDA even as lenders compete for quality credits.
Market positioning for fundamental shift in lending landscape
The week of September 2 – 7, 2025 marked an inflection point for middle market finance as multiple forces converged to reshape the lending ecosystem. The shocking employment data virtually ensures monetary accommodation will begin September 17, providing relief to borrowers facing elevated rates. Simultaneously, the private credit industry’s bold declarations about replacing traditional financing channels gained credibility through massive capital deployments and blue-chip client wins. Regulatory clarity on digital assets opened new frontiers for collateralization and value creation, while specialty finance providers expanded capacity to serve underbanked market segments.
For middle market participants, this environment presents extraordinary opportunities alongside notable risks. Access to capital has rarely been more abundant, with multiple financing channels competing aggressively for quality credits. Yet the deteriorating employment picture — with unemployment rising to 4.3% and long-term joblessness increasing — suggests economic headwinds that could challenge borrower fundamentals. The contrast between robust capital markets activity and weakening real economy indicators creates a divergence that lenders and borrowers must navigate carefully.
As traditional boundaries between public and private markets continue dissolving, middle market companies increasingly benefit from institutional-quality financing previously reserved for large corporates. The $43.3 billion single-day bond issuance on September 2 demonstrates capital markets’ continued functioning despite uncertainty, while private credit’s willingness to finance everything from Meta to middle market manufacturers shows the sector’s maturation. This democratization of sophisticated financing tools, combined with regulatory accommodation and technological advancement, positions the middle market for continued evolution regardless of near-term economic volatility.
Footnotes
[1]. Employment Situation Summary – 2025 M08 Results
[3]. Why Apollo CEO Marc Rowan says the traditional investing model is ‘broken’
[4]. US 10 Year Treasury Bond Note Yield – Quote – Chart – Historical Data – News
[5]. Busy September US corporate bond market expected despite lower rate cut odds
[6]. Credit Markets Near Records After $90 Billion Bond Sale Spree
[7]. Blackstone Private Credit Fund Taps US High-Grade Bond Market
[8]. Asset-Based Lending: Regional Banks and Niche Markets Drive Sector Growth in 2025
[9]. Fed Joins OCC, FDIC in Withdrawing Crypto Warnings for U.S. Banks
[10]. U.S. Bancorp re-embraces bitcoin after end of Biden-era snag
[11]. Citi, BNY, UBS and others see $8.3M in CFTC penalties
[13]. Rosenthal Capital Group Joins Equipment Finance Division as Senior BDO
[14]. Supply Chain Finance Market Report 2025
[15]. Goldman Sees Lucrative Lifelines in Easing Private Equity Logjam
[16]. HSBC AM Joins Peers With Private Equity Fund Targeting Wealthy
[18]. CLO 2025: Opportunities & Risks in Collateralized Loan Obligations
