Corporate Credit Snapshot - April 2025

April 9, 2025

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US

US credit markets declined during this risk-off March, and US government bonds were once again the outperformers in response to ongoing uncertainty surrounding tariffs, political uncertainty, and potential slowing of the economy. While trends vary by sector, high yield fundamentals remain stable even as market views continue to evolve with tariff related uncertainty. In our view, market technicals were strong in March. Solid overall yields continued to attract investors to the high yield market this month, supported by positive mutual fund flows, although issuance was slightly below investor demand.  Back when we were heading into 2025, the market expected a significant uptick in M&A driven supply that has yet to materialize. With tariff driven uncertainty driving heightened volatility for risk assets, there could be a temporary suppression of both investor demand and bond issuance.

EUROPE

European credit markets declined during this risk-off March. At the start of the month—as expected—the European Central Bank (ECB) cut rates by 25 basis points (bps) while the US Federal Reserve (Fed) stayed on hold. A major theme for the month was the continued rate divergence between Europe and the US. After the announcement of Germany’s new spending package—focused on defence and infrastructure—the German 10-year yield finished the month notably higher, while rates in the US were relatively unchanged as growing recession concerns continued to weigh on US Treasury yields. The potential for a positive growth shock in Europe, coupled with a steeper yield curve, helped European spreads to outperform (although they were still slightly wider). Meanwhile in the US, growth concerns, political uncertainty, and a flatter yield curve saw spreads move notably wider.

EM

Emerging Market (EM) debt performed better than expected in this risk-off March. EM corporate credit outperformed EM sovereigns. In a departure from typical risk-off price action, EM corporate credit outperformed its European and US counterparts across both investment grade and high yield segments, with the former generating a positive total return for the month. However, within the EM credit universe, performance trends aligned more closely with a risk-off environment—high-yield lagged investment grade, and rating buckets decompressed. CCC rated debt underperformed single-Bs, which trailed BBs, while BBBs fared better, and the single-A rated segment served as a safe haven. More defensive sectors—such as financials and utilities—outperformed, generating positive total returns, while shorter duration credit outperformed the broader market.

OUTLOOK

Credit markets were primarily driven by uncertainty related to US tariffs this month. The market has struggled to price the wide range of potential outcomes of the announcements scheduled for early April. With tariffs expected to weigh on economic data through 2025, the market continues to expect three cuts from the Fed by the end of 2025, and two from the ECB. However, uncertainty remains elevated, not least on the inflation front. We continue to monitor how central banks navigate the challenge of managing inflation while supporting growth. 

 

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 2025 and may change without notice.

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