Corporate Credit Snapshot - May 2026

May 12, 2026

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US

US credit delivered positive returns across the board in April, with spread tightening as the primary driver of performance. While markets reversed many of the worst-case scenarios priced in during March, markets swung between optimism and uncertainty throughout the month. Early hopes for a swift resolution to the conflict in the Middle East—spurred by a ceasefire in Iran and Lebanon and the start of US-Iran negotiations—initially gave the market confidence to price in a swift resolution. Equities rallied and rates moved lower as fears of inflation and rate hikes started to dissipate. However, challenges began to mount; the Strait of Hormuz remained closed, the US initiated a naval blockade, and negotiations ultimately collapsed by month-end. Oil reversed its drop in price from early in the month and rose sharply. Interest rates followed a similar path—falling early on resolution hopes before rising as those hopes faded. The Federal Reserve held rates steady, communicating patience despite growing disagreement within the Federal Open Market Committee.

EUROPE

European credit markets delivered positive returns across the board in April, with spread tightening as the primary driver of performance. Many of the US market themes also apply to Europe.  Please refer to the US paragraph above for further information.

EM

Emerging markets (EM) debt delivered positive returns across the board in April, as markets reversed many of the worst-case scenarios priced in during March. Within EM, sentiment was clearly risk-on. Sovereigns slightly outperformed corporates on greater frontier market exposure, with Ukraine, Sri Lanka, and Ecuador in the lead. In terms of credit quality, lower-rated segments outperformed—single-Bs led in high yield, BBBs in investment grade—and spread compression was sharpest at the front end, making short-duration the strongest performer. Regionally, Europe, Middle East, and Africa (EMEA) topped high yield, driven by the Middle Eastern homebuilders and African energy, while Latin America led investment-grade returns on long-duration Mexican corporates. Real estate and basic industry saw the sharpest mean reversion; defensives like financials lagged, though spreads tightened across all sectors.

OUTLOOK

With major central banks not due to make their next policy announcements until June, geopolitics and shifting signals from the US administration are likely to be the dominant market drivers in the month ahead. During this time, we see markets maintaining a fine balance between resilient fundamentals and a more uncertain macro backdrop. Energy markets are a key swing factor: with the Strait of Hormuz still closed, oil and gas prices are likely to stay elevated, increasing the risk of supply shortages and persistent inflation. While the US consumer has so far absorbed higher energy costs, supported by domestic energy self-sufficiency, risks of volatility could increase if the conflict persists and inventories decline further. At month-end, credit markets appear to be showing little evidence of pricing in downside scenarios. Spreads have retraced to tight levels, despite early signs of macro-softening and regional divergence. Against this backdrop, we continue to favor short-duration credit where yields remain attractive in our view, while selectively adding higher-quality high yield where we believe fundamentals justify the spread. We believe that investors’ demand for income should continue to support credit. 

 

Past performance is not a reliable indicator of current or future performance. 

Muzinich views and opinions are for illustrative purposes only and not to be construed as investment advice.

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 March 2026 and may change without notice.

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