At first glance, the credit landscape today exudes stability:
- Yields remain elevated across both U.S. and European markets, offering attractive carry for investors in both Investment Grade (IG) and High Yield (HY).
- The fundamental backdrop has—so far—held firm. First-quarter earnings were broadly stable, and although Q2 clarity remains pending, default rates have stayed subdued, and rating migration has not shown alarming trends.
- Technical are equally constructive. Following the “Liberation Day” outflows earlier this year, flows have returned with force, not only recovering prior losses but exceeding them. In IG credit, record issuance was largely well absorbed by investors, while issuance in HY remained muted, lending natural support to spreads.
- Central banks have provided a helpful backdrop. The European Central Bank has decisively eased, while the Federal Reserve appears poised to begin its long-anticipated easing cycle, now that inflation is approaching levels compatible with a cautious rate cut.
- Fiscal policy has also added fuel to the fire: the U.S. continues to deploy substantial government support via the “Big Beautiful Bill,” while Germany has proposed a meaningful stimulus package. Growth, on the surface, may well surprise to the upside. So—why worry?
