Last week we punctured the myth that the influx of new private debt funds is creating excess demand for the level of deal supply of middle market senior loans [link]. We now turn our attention to credit quality. How will this year fare for credit investors relative to years past, and expectations?

First, let’s separate the creditworthiness of the borrower from the structures imposed upon them. In general, top-line performance of middle market companies should receive support from the economy over the next year or so. While specific tax, trade, and fiscal policies are evolving, domestic tailwinds should be sufficient in the short-run to give some lift to US-centric businesses.

Of course, not all sectors will feel the same breeze at their backs. Heathcare, for example, is likely to be subject to regulatory changes. Retailers will be challenged by some international tariff proposals being discussed. And who knows what the outlook for energy-related issuers will be? But most economists believe there is more upside than downside to 2017 GDP growth, even if it’s a modest rise early on.

From a markets perspective, many credit investors have noted since mid-2016 how increasing liquidity, particularly in broadly syndicated loans, is driving pricing and structure. This trend has accelerated over the past few weeks, highlighted by a plethora of repricings and refinancings. Strong borrowers are seeing pricing trimmed by 100 bps or more.