The spread curve is back

August 6, 2026

If you have any feedback on this article or are interested in subscribing to our content, please contact us at opinions@muzinich.com or fill out the form on the right hand side of this page.

--------

After years of unusually flat credit spread curves, the market is beginning to differentiate more clearly between short- and longer-dated risk. As issuance, rate uncertainty and technical factors reshape valuations, the front end continues to offer a compelling balance of carry and resilience argue Ian Horn and Eric Schure.

Recent market behaviour has highlighted an increasing distinction between short- and longer-dated credit. While overall spreads have remained resilient, investors are beginning to demand greater spread compensation for extending duration. We believe this reflects a combination of elevated issuance and increased rate uncertainty, coupled with persistent demand for short-dated credit.

Since April, front-end credit has continued to perform well, with spreads tightening in both the US and Europe. Longer maturities have also benefited from supportive market conditions but have recently shown signs of weakness as investors confront the new reality of longer-dated exposure.

Several factors are contributing to this trend. New issue supply has been heavy and concentrated in the long-end, particularly from AI-related borrowers. Meanwhile reduced Fed communication and volatile energy prices have left both the policy path and the inflation outlook less clear.

Investors are compounding these factors with a higher degree of operational uncertainty in long-dated paper from capital-intensive AI borrowers, whilst front-end bonds remain well supported by strong demand for shorter-dated paper.

For investors seeking to minimise interest-rate sensitivity while continuing to capture attractive carry, this backdrop reinforces the appeal of short-duration credit. With spreads remaining resilient, shorter maturities continue to offer a compelling balance between yield and risk management, offering defensive breakeven characteristics in the current elevated yield environment.

Figure 1: Change in spreads since April in long- and short-dated US investment grade

Source: ICE BofA Indices, as of 31 July 2026. Change in option-adjusted spread to worst versus 31 March 2026. For illustrative purposes only. You cannot invest directly in an index.

Since April, short-dated credit spreads have tightened further, whilst long-dated spreads have more recently widened as investors price the new reality of longer-dated exposure.

 

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.

--------

Index descriptions

C9A0 - ICE BofA 10+ Year US Corporate Index is a subset of ICE BofA US Corporate Index including all securities with a remaining term to final maturity greater than or equal to 10 years.

C1A0 - ICE BofA 1-3 Year US Corporate Index is a subset of ICE BofA US Corporate Index including all securities with a remaining term to final maturity less than 3 years.  

Important information

Muzinich and/or Muzinich & Co. referenced herein is defined as Muzinich & Co., Inc. and its affiliates. Muzinich views and opinions.  This material has been produced for information purposes only and as such the views contained herein are not to be taken as investment advice. Opinions are as of date of publication and are subject to change without reference or notification to you. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments and the income from them may fall as well as rise and is not guaranteed and investors may not get back the full amount invested. Rates of exchange may cause the value of investments to rise or fall.

Any research in this document has been obtained and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to their accuracy. Opinions and statements of financial market trends that are based on market conditions constitute our judgment and this judgment may prove to be wrong. The views and opinions expressed should not be construed as an offer to buy or sell or invitation to engage in any investment activity, they are for information purposes only.

This discussion material contains forward-looking statements, which give current expectations of future activities and future performance. Any or all forward-looking statements in this material may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Although the assumptions underlying the forward-looking statements contained herein are believed to be reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurances that the forward-looking statements included in this discussion material will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Further, no person undertakes any obligation to revise such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

United Arab Emirates (UAE): This information is provided for discussion and informational purposes only and does not constitute an offer or solicitation in the UAE. It is intended solely for Professional Investors and should not be relied upon by any other person. This material has not been reviewed or approved by the UAE Securities and Commodities Authority, the UAE Central Bank or any other relevant authority. Nothing contained herein constitutes investment, legal, tax or other professional advice. Recipients should make their own independent assessment where appropriate.

Abu Dhabi Global Market (ADGM): This information is provided for discussion and informational purposes only and does not constitute an offer or solicitation in the ADGM. It is intended solely for Professional Clients (as defined by the Financial Services Regulatory Authority) and should not be relied upon by any other person. This material has not been reviewed or approved by the Financial Services Regulatory Authority or any other relevant authority in the UAE.

United States: This material is for Institutional Investor use only – not for retail distribution. Muzinich & Co., Inc. is a registered investment adviser with the Securities and Exchange Commission (SEC). Muzinich & Co., Inc.’s being a Registered Investment Adviser with the SEC in no way shall imply a certain level of skill or training or any authorization or approval by the SEC.

Issued in the European Union by Muzinich & Co. (Ireland) Limited, which is authorized and regulated by the Central Bank of Ireland. Registered in Ireland, Company Registration No. 307511. Registered address: 32 Molesworth Street, Dublin 2, D02 Y512, Ireland. Issued in Switzerland by Muzinich & Co. (Switzerland) AG. Registered in Switzerland No. CHE-389.422.108. Registered address: Tödistrasse 5, 8002 Zurich, Switzerland. Issued in Singapore and Hong Kong by Muzinich & Co. (Singapore) Pte. Limited, which is licensed and regulated by the Monetary Authority of Singapore. Registered in Singapore No. 201624477K. Registered address: 6 Battery Road, #26-05, Singapore, 049909. Issued in all other jurisdictions (excluding the U.S.) by Muzinich & Co. Limited. which is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3852444. Registered address: 8 Hanover Street, London W1S 1YQ, United Kingdom. 2026-08-04-19146