Roll down and Carry on - Credit investing in 2026

Insight

December 16, 2025

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Key Takeaways

Macro cycle well supported:

  • Global growth supported by easing financial conditions, strong equities and government spending; central banks keep some room to ease.

US vs. Europe dynamics:

  • US: Federal Reserve cuts likely as it expects employment to weaken; short-term rates may reach 3-3.25% by mid-2026.
  • Europe: European Central Bank likely to stay put for now, balancing positive German fiscal impulse and stable and modest private consumption with the risk of slowing employment.

Credit fundamentals remain strong:

  • Tight spreads supported by solid corporate earnings, high margins, low defaults; no broad deterioration in credit quality expected.

Strategic portfolio implications:

  • US: barbell strategy (short dated +7-10-year exposure); Europe: intermediate-duration focus on roll-down returns
  • Maintain overweight in high yield (HY), overweight in BBB in investment grade (IG), compressed risk premia in IG favours rotation from sub to senior, value in senior CLO tranches, underweight BB in dedicated HY portfolios, avoid CCCs.
  • Sector exposure: Keep overweight in IG autos, real estate, banks and financial services, reduce underweight in US cyclicals and add selectively in healthcare, keep telco exposure.

Risks & opportunities:

  • Elevated valuations and low dispersion in IG but more dispersion to take advantage of within HY. Technical factors to remain supportive but with risk of more volatility in flows and growing supply.

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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 December 2025 and may change without notice.