Navigating credit in a higher yield world

Credit should benefit from structural scarcity and high starting yields, but investors should prioritize active selection, moderate duration and income over capital gains.

• The global public bond market grew from roughly $15tr in 1990 to $160tr at the end of 2025, while government bonds have overtaken public credit as the larger share of the bond universe.
• IMF projections imply a net addition of $30-35tr in government debt by 2030, versus a top-end JP Morgan estimate of $2.1tr in cumulative investment-grade corporate bond issuance linked to AI.
• Starting yields on the global 1-5 year investment-grade corporate bond index are in the 90th percentile of the past 30 years, while US and European high-yield indices offer starting yields comfortably above 8%.
• Five-year US Treasuries yield around 4.8%, and their yield would need to rise to 5.95% for holders to post a negative 12-month return; meanwhile, refinancing pressure is expected to increase dispersion and weaken the most leveraged credits.
• The authors favor modest duration and selective shorter-duration investment-grade and high-yield exposures, alongside specialist sectors such as CLOs and bank AT1s, while viewing the upside from further spread compression in European AT1s as more limited.

Takeaway: Investors should seek steady income rather than rely on a return to ultra-low yields or large capital gains, using flexible active credit management to navigate dispersion, long-end volatility and weaker issuers.