Thoughts on the Market — "A Revolution in Credit Markets"
Host: Vishy Tirupattur (Morgan Stanley Chief Fixed Income Strategist)
Guest: Dan Toscano (Chairman of Markets in Private Equity, Morgan Stanley)
Date: January 7, 2026
Episode Overview
This special edition of "Thoughts on the Market" centers on the sweeping changes and "revolution" currently underway in credit markets. Vishy Tirupattur interviews Dan Toscano, a credit markets veteran, who shares his perspective on the structural evolution from the early junk bond era to today’s blurred lines between public and private credit. The conversation zeroes in on regulatory shifts, the transformative role of private credit, and the massive capital demands now emerging to finance the next industrial revolution—particularly in digital infrastructure and related sectors.
Key Discussion Points & Insights
Dan Toscano’s Journey Through Credit Markets
- (00:32-01:13)
- Toscano shares that he began on Wall Street in 1988 buying junk bonds, notably RJR Nabisco Reset Notes—“barbarians at the gate” era.
- Early career was steeped in financing LBOs (leveraged buyouts) and corporate carve-outs—highlighting the small scale of firms like Bain Capital at the time.
“My first job on Wall Street was buying junk bonds in the infancy of the junk bond market... One of the first bonds we bought were RJR Nabisco Reset Notes.” — Dan Toscano [00:43]
Evolution of Credit Markets
- (01:13-02:51)
- Highlights how credit markets enabled major industry shifts, such as deconglomeration (breaking up big corporates).
- Notes progression into telecom’s boom and bust, the global financial crisis (GFC), and the proliferation of distinct credit sectors: private, public, syndicated, and structured.
Regulatory Impact: Leverage Lending Guidelines
- (02:51-04:06)
- What happened?
Leverage lending guidelines, especially the 6x leverage cap, dramatically limited banks’ participation as underwriters and lenders post-GFC. - What did this cause?
Led to rapid growth of private credit as banks were sidelined; private funds filled the demand.
- What happened?
“The thing most famously attributed to the leverage lending guidelines was this maximum leverage notion of six times leverage… It really gave rise to the growth in the private credit market.” — Dan Toscano [03:18]
Recent Change: Withdrawal of Guidelines & Market Implications
- (04:06-05:37)
- In late 2025, the FDIC and OCC fully withdrew these guidelines.
- Questions arise: Will private credit shrink as banks step back in?
- Toscano asserts credit channels will not be mutually exclusive—rather, a continuum, with blurred boundaries between public and private markets.
- Terms, participants, and pricing have been converging for some time.
“We’ve never thought of these as being mutually exclusive… This will also continue the blurring of distinctions between public market credit and private market credit, because now the banks can participate in all of it.” — Dan Toscano [04:36]
The Rise of Private Credit 2.0: Focus on Digital Infrastructure
- (05:37-07:25)
- Traditionally, private credit concentrated on small and mid-sized enterprises (SMEs).
- Now, “Private Credit 2.0” is dominated by the capital needs of digital infrastructure: data centers, power generation, and related technology.
- This represents investment on a “trillions” scale—the backbone of a new industrial revolution.
“The elephant in the room is digital infrastructure. When you think about the scale of what is happening… the type of capital that's required… this is a scale unlike anything we have ever seen.” — Dan Toscano [06:17]
Looking Into 2026: Risks and Unknowns
- (07:25-11:07)
- What worries Toscano?
- The unprecedented scale and speed of investment: moving from "infancy" of buildouts to operational realities.
- As projects progress, risks will materialize (delays, cost overruns, supply/labor issues).
- So far, the environment has been “perfect”—few problems tested.
- He predicts upcoming "reactions" from investors when inevitable problems occur.
- Unique challenge: lack of visibility on both demand and supply for capital. Both keep increasing and are unpredictable at this scale.
- Outlook: While there is some trepidation about shocks or overreactions, overall confidence that capital will flow to strong projects.
- What worries Toscano?
“The essence of credit risk is there will be problems. And it's really trying to predict and foresee where the problems will be and make sure you can manage your way through them.” — Dan Toscano [08:41]
“We don't know how big the demand is in the capital world to fund these projects… We're talking trillions of dollars, right? Not billions, not millions, but trillions.” — Dan Toscano [10:25]
Notable Quotes & Memorable Moments
- "My kids would refer to it as old, but I started in this journey in 1988." — Dan Toscano [00:43]
- “It really gave rise to the growth in the private credit market.” — Dan Toscano [03:22]
- “We’ve never thought of these as being mutually exclusive… This will also continue the blurring of distinctions...” — Dan Toscano [04:36]
- “The elephant in the room is digital infrastructure… This is a scale unlike anything we have ever seen.” — Dan Toscano [06:17]
- “I'm a little bit worried that there could be some overreaction because people have trained themselves in 2025 to think of like, I'm operating in a perfect environment because we haven't really done anything yet.” — Dan Toscano [09:30]
- “We don’t know how big the demand is… and the supply... continues to grow in a way that we don’t know where it ends.” — Dan Toscano [10:27]
Important Timestamps
- 00:32 — Toscano’s journey in credit markets
- 02:51 — Impact of leverage lending guidelines
- 04:06 — Relaxation/withdrawal of guidelines, blurring of market distinctions
- 05:37 — The rise of Private Credit 2.0 and digital infrastructure focus
- 07:41 — Key 2026 risks: predictable and unpredictable shocks, supply/demand unknowns
- 10:25 — “Trillions, not billions”: the scale of the modern credit market revolution
Summary
This episode expertly tracks the “revolution” reshaping global credit markets. Dan Toscano traces the story from the LBO-driven junk bonds of the late '80s to a present shaped by regulatory retreat and transformative capital needs. The withdrawal of leverage lending guidelines in 2025 erased historic boundaries, allowing banks and private funds to compete and collaborate more freely. The discussion then pivots to the breathtaking capital requirements of digital infrastructure and AI—the backbone of the next industrial revolution—highlighting both unparalleled opportunities and the inevitability of new, complex risks. Listeners come away with an appreciation for how dynamic, interconnected, and uncertain the future of credit markets has become.