Corporate Credit Snapshot - August 2026

August 10, 2026

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US

US credit was not immune to the global market drawdown in July, which was driven by renewed political tensions in the Middle East and heightened uncertainty surrounding changes in the Federal Open Market Committee’s policy outlook. The re-ignited exchange of strikes between the US and Iran pushed government bond yields higher as investors priced in the reflationary impact of higher energy prices. The Federal Reserve left policy rates unchanged, and Chair Kevin Warsh gave the market little new information about the path of rates ahead. The US Treasury curve steepened, with the 30-year Treasury yield notably rising, while a softer than expected inflation reading limited the increase in the 2-year yield. Q2 earnings generally showed healthy growth across sectors; however, the technology sector continued to see heavy bond issuance, particularly at the long end of the curve, which weighed on market technicals.

EUROPE

European credit markets navigated a volatile backdrop in July, driven primarily by renewed geopolitical tensions in the Middle East. Government bond yields moved broadly higher across the region as investors priced in the reflationary impact of rising energy prices, with a steepening dynamic evident across major curves. In the US, the Federal Reserve left policy rates unchanged, and Chair Kevin Warsh gave the market little new information about the path of rates ahead. In Europe, the European Central Bank kept rates on hold but signaled that a September hike remained likely. European rates moved up partly in sympathy with the broader rate sell-off, and amid longer-term concerns over fiscal discipline. In the UK, while the Bank of England struck a more dovish tone, rates moved higher largely on concerns over potential increased borrowing as the UK’s new prime minister took office. Performance diverged somewhat across regions, with EUR investment grade spreads ending the month marginally tighter, while US investment grade spreads moved modestly wider on the back of continued heavy bond issuance in the technology sector, particularly at the long end of the curve.

EM

Emerging markets (EM) debt successfully navigated a volatile backdrop in July, driven primarily by renewed geopolitical tensions in the Middle East; spreads were relatively stable and carry remained robust. China's Politburo convened its mid-year meeting, with economic policy high on the agenda. While there seemed to be more rhetoric than specifics, the committee appeared to give the green light for further monetary and fiscal loosening in the second half of the year. This month, the International Monetary Fund upgraded Brazil's 2026 growth forecast, citing a strong harvest, oil-exporting status, greater fiscal support, and robust private consumption, while cutting Mexico's growth outlook for 2026 amid a weaker first quarter and a protracted USMCA (United States-Mexico-Canada Agreement) review. This backdrop played out against a broader rise in government bond yields, as heightened uncertainty surrounding the Federal Open Market Committee's policy outlook and only limited communication from Chair Kevin Warsh left the market with little new information, leading the US Treasury curve to steepen.

OUTLOOK

We are now heading into a seasonally quieter and weaker part of the year, with US mid-terms on the horizon and the Middle Eastern conflict still unresolved. We expect Treasury volatility to remain elevated around Federal Open Market Committee meetings and key data releases, and with the Bank of Japan's signaled autumn hike adding a further source of potential event risk. In general, we remain positive on corporate fundamentals, although we acknowledge the market's increased caution on the technology sector given limited visibility on capex returns and competitive pressures. We also acknowledge that credit spreads broadly look quite compressed; however, we continue to find healthy yields which can offer income and some downside defense. We remain focused on investing where we believe risk premia look most attractive.

 

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 July 2026 and may change without notice.

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