Corporate Credit Snapshot - September 2025

September 5, 2025

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US

US credit markets generated positive returns in August. Markets were supported by a risk-on environment due to expectations that the Federal Open Market Committee will loosen policy in September. US rates fell on significantly softer labor data at the start of the month, a move further compounded by Chairman Jerome Powell’s dovish comments at the Jackson Hole symposium. Spreads were stable as investors absorbed a solid reporting season, steady issuance, and modest inflows. At month-end, the market is pricing a Federal Reserve (Fed) rate cut for September with a second cut widely anticipated before year-end. At the same time, core inflation increased in August, potentially complicating the Fed’s path.

EUROPE

European credit markets generated positive returns in August. At month-end, the market is pricing a US rate cut for September with a second cut widely anticipated before year-end. In Europe, the return of political uncertainty in France weighed on spreads and created market volatility. While European spreads outperformed during the first part of the August, they underperformed during the latter part of the month as expectations of a vote of no-confidence for the French government in September grew, and Federal Reserve messaging became increasingly dovish. Meanwhile, more hawkish European Central Bank comments and inflation concerns pushed rates higher. Primary markets were relatively quiet given the time of year, although we expect that September will be a busy month, particularly given that while spreads moved wider in August, they remain tight in a historical context.

EM

Emerging markets (EM) debt delivered strong positive returns supported by a risk-on environment due to expectations that the US Federal Open Market Committee will loosen policy in September. US rates fell on significantly softer labor data at the start of the month, a move further compounded by Chairman Jerome Powell’s dovish comments at the Jackson Hole symposium. EM corporate credit outperformed its sovereign peers; investment-grade corporates benefitted from falling government yields at the front end of curves, while the high-yield segment gained from improved risk sentiment that supported spread tightening. Within investment grade, Asia led performance, driven by technical support from limited supply. In high yield, EMEA (Europe, Middle East & Asia) outperformed expectations, buoyed by progress on peace talks in Ukraine and stable oil prices.

OUTLOOK

Some common drivers of recent price movements include reasonable economic growth, anchored inflation, and the continued easing of global financial conditions—factors that have contributed to historically tight corporate credit spreads and supported commodity prices (excluding energy). Differentiation across markets has largely been driven by geopolitical factors including tariffs, fiscal concerns, and pressures on independent institutions or weak governments. Corporate credit spreads indicate that investors perceive somewhat limited near-term risk due to generally contained levels and decent fundamentals, while economists seem focused on the likelihood of the continued global easing of government policy through either rate cuts or fiscal measures. However, September has been a month long viewed as tricky for asset prices. Consequently, we are keeping our eye on potential catalysts including US tariffs, reconsideration of a US rate cut, political instability in Europe, and other geopolitical interferences. While capital markets keep grinding higher, we are prepared for September to be a possible rollercoaster month. 

 

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 September 2025 and may change without notice.

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