Corporate Credit Snapshot - July 2025

July 9, 2025

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US

US credit markets generated positive returns in June across the board. Geopolitical risks took center stage as Israel and Iran entered direct military confrontation, drawing in the US and raising widespread concerns about potential global contagion. We continue to see divergent signals from the Federal Reserve (Fed) and European Central Bank (ECB). The Fed’s Jerome Powell struck a more dovish tone this month, indicating that cuts could come “sooner rather than later.” By contrast, the ECB’s Christine Lagarde suggested that the ECB is now “getting to the end of a monetary policy cycle.” Aligned with this, we continue to see a divergence in US and European rate movements. For US investment grade, a strong rally in US rates helped yields to decline, while Eurozone yields moved higher. Should these trends continue over the next 12 months, we would anticipate lower currency hedging costs for European owners of USD denominated assets. This could lend further support to US credit markets.

EUROPE

European credit markets generated positive returns across the board in June. Geopolitical risks took center stage as Israel and Iran entered direct military confrontation, drawing in the US and raising widespread concerns about potential global contagion. This month, Eurozone activity consistently surprised to the upside, while US data fell short of expectations. Consequently, we continue to see a divergence in US and European rate movements. In US investment grade, a strong rally in US rates helped yields decline, while Eurozone yields moved higher. We continue to see differing signals from the Federal Reserve (Fed) and European Central Bank (ECB). The Fed’s Jerome Powell struck a more dovish tone this month, indicating that cuts could come “sooner rather than later.” By contrast, ECB’s Christine Lagarde suggested that the ECB is now “getting to the end of a monetary policy cycle.”

EM

Emerging market (EM) debt delivered positive results in June. Geopolitical risks took center stage as Israel and Iran entered direct military confrontation, drawing in the US and raising widespread concerns about potential global contagion. EM sovereigns gained strongly in June, led by frontier markets and long-dated securities. Sentiment improved significantly following the announcement of an Israel-Iran ceasefire, triggering broad-based spread tightening and giving high yield (HY) an edge for the month. Combined with falling US Treasury yields, the environment was particularly favorable for BB-rated credit—the proverbial “sweet spot,” in our view—which benefitted from both spread compression and sensitivity to falling government yields. At a regional level, Latin American credit was the top-performer this month (outpacing its US credit peer across both HY and investment grade (IG) segments). In the IG space, long-dated Mexican securities were key contributors, while in Latin American, HY benefitted from the tailwind of rising oil prices.

OUTLOOK

In general, we believe global credit markets remain healthy and are functioning well. Busy primary calendars ahead of the summer lull were easily absorbed in June, with market sentiment additionally helped by improvements in trade talks between the US and other countries. While pressures in the Middle East temporarily derailed that positive sentiment, a relatively quick ceasefire helped to ease tensions, as did renewed commitments by NATO member countries. By month-end all eyes were on the potential passage of the “Big Beautiful Bill” in the US. While passage was not a certainty at month-end, we do not foresee the bill’s expected increase in fiscal deficits to create a near term negative drag on markets. We do see the passage of the bill as having the potential to extend tax cuts for corporations and maintain lower rates for consumers and businesses, keeping the market stable.  

 

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 2025 and may change without notice.

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