Corporate Credit Snapshot - July 2026

July 8, 2026

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US

US credit delivered positive returns across the board this month. The Memorandum of Understanding (MoU) signed by the US and Iran brought oil prices back to the levels seen just before the military operation began at the end of February. At the same time, in his first press conference, the new US Federal Reserve (Fed) Chair Warsh struck a hawkish tone, emphasizing the importance of bringing inflation back in line with the Committee's objective. As a result, the US Treasury curve bear-flattened, with investors increasing the probability of additional policy tightening later this year. Credit spreads remained broadly stable throughout the month. The higher carry available in the high yield market enabled it to outperform its investment grade counterpart.

EUROPE

European credit markets delivered positive returns in June. The Memorandum of Understanding (MoU) signed by the US and Iran brought oil prices back to the levels seen just before the military operation began at the end of February. This allowed European interest rates to decline in parallel, as both growth and inflation expectations improved, while expectations for further monetary policy tightening were scaled back. European government bond curves bull-flattened in June, with UK Gilts outperforming, as softer UK inflation and encouraging euro area Harmonised Index of Consumer Prices (HICP) data suggested inflation may have peaked.  In contrast, the US government bond curve diverged from Europe after newly minted US Federal Reserve (Fed) Chair Walsh struck a hawkish tone and the US Treasury curve bear-flattened, with investors increasing the probability of additional policy tightening later this year. Lower European interest rates and carry provided the primary drivers of total returns for the month, while credit spreads remained broadly stable.

EM

Emerging markets (EM) debt gained in June. Within the EM credit universe, sovereign bonds modestly outperformed their corporate counterparts, largely reflecting the sovereign index's higher allocation to Colombian debt. Colombian bonds rallied sharply after right-wing outsider Abelardo de la Espriella, known as "The Tiger," secured a surprise victory in the presidential election. This also helped make Latin American high yield the strongest-performing region within the high yield corporate universe. Meanwhile, within investment grade, Latin America also outperformed, supported by spread tightening and the region's relatively large exposure to longer-duration bonds, which outperformed on the US Treasury curve that bear-flattened. Across rating buckets, BB-rated bonds delivered the best performance, benefiting from their attractive carry and lower sensitivity to the rise in US Treasury yields. All sectors generated positive total returns during the month, although performance varied significantly. Transportation was the clear standout, benefiting from lower energy prices, while auto producers lagged as persistent oversupply and the impact of tariffs continued to weigh on the sector. On the demand side, fund flows remained supportive, helping to provide a favorable technical backdrop for the asset class.

OUTLOOK

Investor optimism has continued to be underpinned by a resilient US economy, with June's data consistently surprising to the upside as AI-driven capital expenditure, healthy consumer spending, and a labor market near full employment continue to support growth. Against this backdrop, US inflation has broadened beyond any single driver, with resilient demand, tariff-related cost pass-through, and AI hardware shortages keeping price pressures sticky. Falling energy prices promise to offer some relief, with Europe especially poised to benefit, contributing to the divergence we are seeing between the US and Europe. Euro area data have generally lagged expectations, though reported data are starting to indicate a state of stagnation rather than contraction. Where investors began 2026 focused on the scale of policy loosening required, attention is increasingly turning to the risk of policy missteps.

 

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

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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 June 2026 and may change without notice.

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