Portfolio Manager
• Quarterly outlook
Credit outlook: Stranger than fiction
Despite a whirlwind of tariffs, geopolitics and policy noise, credit markets have tightened, our latest outlook explores how and what lies ahead.
Authors
Matthew Jackson
CIO High Yield, Portfolio Manager
Summary
- Credit spreads have staged an impressive recovery post-Liberation Day
- The credit market continues to be supported by exceptional technicals
- Aside from tight spread valuations, there are still reasons to be cautious
The second quarter of 2025 has been remarkable in many ways. No sooner had we clicked ‘send’ on our previous edition, than the world was greeted by Liberation Day. The immediate impact of the tariff shock and associated negativity saw a material weakening in risk assets across the board. Just one week later, ostensibly ‘spooked’ by sharp volatility in the Treasury and equity markets, came the 90-day reprieve on reciprocal tariffs stoking a dramatic recovery in the markets.
The ‘One Big Beautiful Bill Act’ (OBBBA), currently under consideration by the Senate, has been a further source of confusion and nervousness. Aside from the potential impact on the US deficit, the inclusion of Section 899 allowing for taxation of foreign investment remains a concern.
Truth is stranger than fiction, but it is because fiction is obliged to stick to possibilities; Truth isn’t. - Mark Twain
Ongoing geopolitical conflicts, particularly in the Middle East more recently, have only added to the uncertainty. Despite all of the above (and much more we could mention!), credit spreads reside at tighter levels than pre-Liberation Day. Stranger than fiction indeed.
In the following pages, we outline our latest views on credit markets and our outlook going forward.
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