Corporate Credit Snapshot - October 2025

October 9, 2025

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US

US credit markets generated excess returns across the board in September. The main macro driver for markets was a flattening of the US government bond curve, with 30-year US Treasury yields falling by more than 20 basis points. Total return was strongest in the longest-duration segments—those universes with the highest exposure to 30-year duration securities—which particularly benefitted US investment grade. As widely expected, the Federal Reserve (Fed) cut rates in September, marking the first rate cut since December 2024. Even so, Fed Chair Jerome Powell confirmed a data-dependent approach with no certain path ahead for policy rates. For US high yield, extremely high new issuance continues to signal sustained demand for the asset class.

EUROPE

European credit markets generated excess returns across the board in September. Primary markets re-opened after the summer break with notable activity from a wide range of issuers. As widely expected, the European Central Bank kept rates unchanged, while the Federal Reserve (Fed) cut rates in September, marking the first rate cut since December 2024. Even so, Fed Chair Jerome Powell confirmed a data-dependent approach with no certain path ahead for policy rates. Spreads rallied back in September after the widening in August, with European investment grade spreads returning to year-to-date tight levels mid-month. However, spreads shifted wider once again towards the end of the month driven by stresses from the US, including a looming US government shutdown and the resurfacing of US-Russian political tensions. The technical demand for credit remained strong as the asset class continues to see inflows.

EM

Emerging markets (EM) debt delivered positive excess returns this month. The main macro driver for markets was a flattening of the US government bond curve, with 30-year US Treasury yields falling by more than 20 basis points. Total return was strongest in the longest-duration segments—those universes with the highest exposure to 30-year duration securities—which particularly benefitted US investment grade and EM hard currency government debt. EM investment grade outperformed high yield, consistent with the decline in US government yields. Within the EM investment grade universe, Latin America led the way, driven by Mexican corporate exposure at the long end of the curve. In the EM high-yield segment, Eastern Europe, Middle East, and Asia stood out, supported by basic industry names. At the sector level, energy was a notable outperformer, despite the decline in oil prices. This month, the sweet spot in terms of ratings was the BBB rated bucket, benefitting from a sensitivity to falling interest rates and credit tightening.

OUTLOOK

Following September’s solid performance, we maintain a constructive outlook for October as issuance moderates and demand driven by reinvestment flows and fund inflows is expected to play a more dominant role in performance. We anticipate continued resilient flows into risk assets, supported by a constructive macro backdrop and potential central bank easing—the Federal Reserve is expected to continue easing, while the European Central Bank and Bank of England are expected to remain unchanged, and the Bank of Japan more likely to raise rates.

 

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 October 2025 and may change without notice.

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