Corporate debt is the new sovereign debt

Corporate credit should take a larger core role in portfolios as sovereign debt burdens rise and corporate balance sheets improve.

• Before Covid-19, public and corporate debt across the Atlantic stood at slightly less than 80% of GDP; since then, public debt has reached 100% while corporate debt has fallen to 71%.
• US nominal growth has exceeded 6% for two quarters, supporting company revenues and limiting credit-margin volatility, while interest-rate volatility has increased.
• The BofA Treasury Index recorded average volatility of 5.6% from 2020 to 2026, compared with 3.6% from 2012 to 2019.
• Investment-grade yields are around 5.0%, versus an average of about 2.5% since the 2008 global financial crisis, although much of the market risk remains sovereign rather than corporate.
• Relative-value opportunities include variable-rate bonds, BB-rated bonds, subordinated debt and collateralised loan obligations, alongside convertible bonds linked to technology and artificial-intelligence infrastructure.

Takeaway: Investors should balance sovereign and corporate credit more evenly, favour diversified quality income and selective duration, and use multisector credit to seek carry while limiting dependence on rising sovereign risk.