Corporate Credit Snapshot - June 2025

June 9, 2025

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US

US credit markets generated positive returns in May as concerns eased over left-tail risks associated with reciprocal tariffs and the US sovereign losing its AAA credit rating. These constructive developments caused high yield credit to outperform. Spread compression stalled later in the month: tensions flared again between the US and China, the US threatened higher tariffs on the EU, and Russia-Ukraine peace talks disappointed. Rates generally moved higher, causing longer duration credit to lag. The Federal Reserve stayed on hold as inflationary concerns persisted. While primary markets were active, spreads continued to tighten as demand remained strong and inflows were recorded across key markets.

EUROPE

European credit markets generated positive returns in May. Spreads rallied as tariff negotiations appeared to be making progress and the Trump administration continued to walk back initial proposals. As might be expected in a month of spread tightening, high yield outperformed investment grade. Within the investment grade universe, Europe outperformed thanks to a more benign rate environment. Spread compression stalled later in the month: tensions flared again between the US and China, the US threatened higher tariffs on the EU, and Russia-Ukraine peace talks disappointed. Rates generally moved higher—particularly in the US—and the Federal Reserve stayed on hold as inflationary concerns persisted. The US Treasury curve was downgraded from AAA to Aa1 by Moody’s mid-month; however, left-tail risks unwound by month-end. While primary markets were active, spreads continued to tighten—demand remained strong, and inflows were recorded across key markets.

EM

Emerging market (EM) debt delivered positive results in May. The EM corporate universe slightly outperformed its sovereign counterpart, reflecting a return of investor risk appetite and wariness of the longer duration profile of the sovereign universe. Meanwhile, high yield credit significantly outperformed investment grade, benefiting from the removal of reciprocal US tariff tail risks and lower sensitivity to government bond yields. In our view, BB rated credit was the sweet spot this month as investors looked to add back risk, with a preference for quality high yield balance sheets. Market confidence was further supported by constructive comments from the Mexican government regarding support for its state-run energy sector, as well as strongly oversubscribed new issuance in Israel’s healthcare sector—both significant index constituents—which contributed to positive price action. Regionally, Asian credit was a clear winner, benefiting from favorable trade negotiations and dovish central banks, which continued to loosen policy. Meanwhile, at the sector level, autos stood out, supported by attractive valuations and the unwinding of worst-case tariff scenarios. In contrast, the quasi-sovereign sector underperformed, largely due to its greater sensitivity to government bond yields.

OUTLOOK

Looking ahead, we believe there is room for further curve steepening in the US and that higher yields could put more pressure on global growth. US earnings could slow due to “higher for longer” rates, tariff headwinds, geopolitical uncertainty, and muted mergers & acquisitions activity. Still, we expect credit markets to remain healthy. We continue to find good value in Europe with regards to duration and credit risk. In the US, fundamentals remain stable, and we maintain a preference for more defensive sectors. In our view, valuations remain fair, and market technicals are strong.

 

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 June 2025 and may change without notice.

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