Corporate Credit Snapshot - August 2025

August 7, 2025

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US

US credit markets generated positive returns in July across the board. Globally, BB/B bond yields edged higher as investors weighed the potential end of the European Central Bank’s policy cycle alongside the inflationary implications of the US administration’s tariff measures and approaching August reciprocal deadlines. Credit markets performed strongly, with spreads tightening—particularly in high yield—driven by continued demand for yield enhancement and supportive supply dynamics. Limited net issuance left investors with a shrinking pool of securities to absorb persistent inflows. The Federal Reserve voted to keep rates on hold for another quarter. 

EUROPE

European credit markets generated positive returns across the board in July. Globally, bond yields edged higher as investors weighed the potential end of the European Central Bank’s (ECB’s) policy cycle alongside the inflationary implications of the US administration’s tariff measures and approaching August reciprocal deadlines. Credit markets performed strongly, with spreads tightening—particularly in high yield—driven by continued demand for yield enhancement and supportive supply dynamics. The outperformer on a spread basis was European high yield, despite an extremely busy month for primary issuance. In our view, this highlights the current strength of the demand for the asset class, with persistent inflows even during the summer period. Both the ECB and Federal Reserve kept rates on hold; the ECB press conference was interpreted somewhat hawkishly, with President Lagarde seeming to conclude that the bar for further cuts is higher than the market expects.

EM

Emerging market (EM) debt delivered positive results in July. Globally, bond yields edged higher as investors weighed the potential end of the European Central Bank’s policy cycle alongside the inflationary implications of the US administration’s tariff measures and approaching August reciprocal deadlines. Credit markets performed strongly, with spreads tightening—particularly in high yield—driven by continued demand for yield enhancement and supportive supply dynamics. Limited net issuance left investors with a shrinking pool of securities to absorb persistent inflows. The US imposed a 25% tariff on India (with additional tariffs to come) as intended punishment for continuing to buy crude oil and defence equipment from Russia. Tariffs on other countries were broadly higher than expected. The meeting of China’s Politburo yielded few surprises; strong growth in H1 (mainly due to front-loading exports and trade diversion to third-party countries), led to less urgent language compared to policy statements from April. However, the focus on stimulating consumption and dealing with overcapacity in certain sectors remained prominent—both could help counter the deflation that has been apparent in recent months.

OUTLOOK

At month-end, higher interest rates in the US and Europe were supported by many key trading partners—including Japan and the European Union—striking deals with the US before the August 1st tariff deadline. China was the notable exception, although negotiations appear to be progressing. Towards the end of the month, President Trump set a deadline for Russia to reach a ceasefire with Ukraine, although the implications of a potential missed deadline remain unclear. We maintain that credit markets remain well supported as we head further into summer. While spreads are historically tight in most parts of the market, we believe total return potential remains attractive with tail risks so far having failed to materialize.

 

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 August 2025 and may change without notice.

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