Technology – challenges can create opportunities

December 4, 2025

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In his latest column on the key developments, themes and opportunities in credit markets, Ian Horn discusses recent news flow around technology companies and how opportunities can be found amongst uncertainty.

In recent years we have seen various sector challenges in Europe that have created opportunities for credit managers. During the volatile COVID era, travel restrictions resulted in the transportation sector trading at an unusual premium to the broad market. In 2022 the real estate sector came under pressure as interest rates rose, and in 2023 the banks underperformed as Credit Suisse and several US regional banks failed. More recently, concerns around tariffs have weighed heavily on autos.

A more positive view on these sectors might be considered contrarian, but we believe they often create opportunities, notably for short-duration strategies. When buying short-dated bonds, investors can capture an element of a sector’s longer-term risk premium, while avoiding  longer-term credit risk.

While the feared challenges may change the outlook for a sector, they typically don’t create a near-term existential threat to higher quality issuers. This is particularly true where issuers have liquidity to repay short-dated bonds, even if other funding sources become unavailable or unattractive.

When buying these instruments, we can focus less on the longer-term prospects of a company and sector, and more on liquidity, cashflow and how an issuer will repay a bond at maturity. This disconnect between a long-term risk premium and a short-term investment can create opportunities. We believe the recent weakness in the technology sector may well be such an opportunity.

In the last few months, we have seen a sharp rise in debt issuance from the technology and related sectors. Much of this is earmarked for the build-out of AI technology, capacity and infrastructure. Market participants have demanded wider spreads in the sector to reflect increased supply and risks around monetisation of the capex investments.

However, we do not see these dynamics undermining the ability of high-quality issuers to service their debt and repay near-term maturities. The sector is home to many of the world’s largest businesses that are highly cashflow generative and globally diversified.

We may see downward pressure on ratings within investment grade and a repricing of equities if cashflow is diverted away from shareholders, but a risk premium can be harvested in a relatively low-risk way through short-dated bonds.

The question is at what point  the risk premium is suitably attractive? As Figure 1 shows, the technology sector in Europe is trading at its ‘cheapest’ versus the broad investment grade market in the last 10 years. On average, the sector has traded c.30bps tighter than the broad market and now sits just c.10bps tighter. However, adding exposure is still dilutive in spread terms versus the broad market.

Acknowledging the broader sector uncertainty, we would look for a positive spread premium over the broad market before meaningfully adding exposure. The performance of short-duration funds is largely driven by yield, and whilst the sector may screen cheap historically, an increased allocation is not yet additive in terms of yield.

We expect the current weak sentiment in the sector will create opportunities over the coming months, and these may be most obvious in short-dated bonds. However, valuations have not reached an attractive enough level for us to meaningfully add exposure.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of December 2025, and may change without notice.

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Index descriptions

ER40 – The ICE BofA BBB Euro Corporate Index is a subset of the ICE BofA Euro Corporate Index (ER00) including all securities rated BBB1 through BBB3, inclusive.

HE10 – The ICE BofA BB Euro High Yield Index is a subset of the ICE BofA Euro High Yield Index (HE00) including all securities rated BB1 through BB3, inclusive.

HE20 – The ICE BofA Single-B Euro High Yield Index is a subset of the ICE BofA Euro High Yield Index (HE00) including all securities rated B1 through B3, inclusive.

ICE BofA Single-A US Corporate Index (C0A3) ICE BofA Single-A US Corporate Index is a subset of ICE BofA US Corporate Index including all securities rated A1 through A3, inclusive.

C0A4 - The ICE BofA  BBB US Corporate Index is a subset of the ICE BofA  US Corporate Index (C0A0) including all securities rated BBB1 through BBB3, inclusive.

J0A1 – The ICE BofA  BB US Cash Pay High Yield Index is a subset of the ICE BofA  US Cash Pay High Yield Index (J0A0) including all securities rated BB1 through BB3, inclusive.

J0A2 – The ICE BofA  Single-B US Cash Pay High Yield Index is a subset of the ICE BofA  US Cash Pay High Yield Index (J0A0) including all securities rated B1 through B3, inclusive.

ICE BofA Single-A US Corporate Index (C0A3) ICE BofA Single-A US Corporate Index is a subset of ICE BofA US Corporate Index including all securities rated A1 through A3, inclusive.

C0A4 - The ICE BofA  BBB US Corporate Index is a subset of the ICE BofA  US Corporate Index (C0A0) including all securities rated BBB1 through BBB3, inclusive.

J0A1 – The ICE BofA  BB US Cash Pay High Yield Index is a subset of the ICE BofA  US Cash Pay High Yield Index (J0A0) including all securities rated BB1 through BB3, inclusive.

J0A2 – The ICE BofA  Single-B US Cash Pay High Yield Index is a subset of the ICE BofA  US Cash Pay High Yield Index (J0A0) including all securities rated B1 through B3, inclusive.

ER30 – ICE BofA Single-A Euro Corporate Index is a subset of ICE BofA Europe Corporate Index including all securities rated A1 through A3, inclusive

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