Pulse Check: What Our Credit Health Index Reveals About the Credit Cycle

Have you ever wondered how investment professionals keep tabs on the economy? How, in uncertain times like these, they gauge overall corporate health and recession risk? At Loomis Sayles, our professionals use a lot of inputs and tools to inform their views. One of these tools is the Loomis Sayles Credit Health Index, or CHIN, a data-driven, forward-looking measure of corporate health. Recently, we sat down with Megan Wan, CFA, Quantitative Analyst, and Tyler Silvey, CFA, Global Macro Strategist, to talk about the CHIN and what it’s telling us about the credit cycle, the possibility of recession and what we should be watching for.

1) What is the CHIN and how does it relate to the credit cycle?

In short, the CHIN is an indicator of corporate health. It quantifies a multitude of top-down and bottom-up data inputs into a single reading that helps predict potential credit downgrades and defaults. Inputs include our analysts’ credit outlook, financial conditions and bottom-up fundamentals like profit margins, among many others. It has a long history, with data going back almost 50 years. Historically, the CHIN has been a good cyclical indicator, with its readings generally tracking the trajectory of the credit cycle. We believe this correlation is because corporate health, and profits in particular, help drive the cycle.

• The light blue shading shows periods of expansion/late cycle. As you can see, there is historical precedent for the CHIN to remain in this phase for an extended period of several years.
• We consider -0.25 a “worry” signal for the CHIN; a downward-trending CHIN at that level is typically associated with recession odds approaching 50%.
• The highest CHIN level witnessed during a downturn is -0.42. A downward trending CHIN near this level would send a serious recession signal, in our view.

Chart Source: Loomis Sayles, data shown from 1 December 1977 to 30 September 2025.
The Credit Health Index (CHIN) is a macro tool created by Loomis Sayles. The CHIN is currently managed by the Loomis Sayles QRRA team. It is proprietary framework that utilizes a combination of macro, financial market and policy variables to project US corporate health. A higher reading indicates stronger corporate health whereas a lower reading indicates weaker corporate health. Charts are illustrative for presentation purposes only as a sampling of risk management tool output. Some or all of this information on these charts may be dated, and, therefore, should not be used as a basis to purchase or sell any securities. The information is not intended to represent any actual portfolio managed by Loomis Sayles.
Views and opinions expressed reflect the current opinions of the QRRA team, and views are subject to change at any time without notice. Other industry analysts and investment personnel may have different views and opinions.
Markets may behave very differently than history suggests, it is not possible for any methodology to accurately identify and interpret all relevant market events.
Please see the Credit Cycle Regime Periods for more details.

2) What is the CHIN telling us right now about the credit cycle?

The average CHIN level during expansion/late cycle is about 0.16. Right now, the CHIN is sitting at -0.01,[i] a bit below its historical average but in late-cycle territory and well above the “worry” signal at -0.25. One of the CHIN’s key inputs is “bottom-up credit fundamentals,” and encouragingly, that input remains in very good shape, driven by profit margins and interest coverage. The credit outlook, another important input, is weak but showing marginal improvement. Our predicted high yield default rate over the next six months is 3.7,[ii] which we consider to be healthy compared to historical HY default rates at this point in the credit cycle. Putting it all together, the CHIN is signaling limited recession risks, in line with the views of the Loomis Sayles Macro Strategies Team.

3) What are the key things to watch for?

Looking ahead, we will be watching a few things closely: the bottom-up fundamentals (particularly corporate earnings and profits), which are still holding up well, and any shifts in macro fundamentals or the credit outlook, which can move quickly based on news or changing sentiment. If corporate profits stay strong, we think the CHIN can hold steady around current levels. If profits start to slip—thanks to things like tariffs, policy changes, or other shocks—then we would expect the CHIN to move lower and recession risks to rise. Historically, when the CHIN drops below -0.3 or -0.4, recession risk jumps dramatically. For now, though, the CHIN isn’t giving us any reason to think the expansion/late cycle phase is ending anytime soon.

WRITTEN BY:

Tyler Silvey, CFA, Global Macro Strategist
Megan Wan, CFA, Quantitative Analyst

[i] Loomis Sayles Credit Health Index, as of 30 September 2025.

[ii] Loomis Sayles Risk Premium Model, as of 30 September 2025.

Credit Cycle Regime Periods from 1997-Present

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