• Quarterly outlook

Credit outlook: Comfortably Numb

As Pink Floyd reminded us with Comfortably Numb, detachment can feel safe in the moment – but it risks leaving us unprepared when reality finally breaks through. Credit markets today seem to embody that same paradox.


Authors

    CIO High Yield, Portfolio Manager
    Matthew Jackson
    Portfolio Manager

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Summary

  1. Spreads are extremely tight, but investors remain upbeat
  2. Strong technicals provide ongoing support
  3. Focus on quality IG and disciplined HY exposure

The third quarter of 2025 has been no less remarkable than the second. Spreads have tightened even further, despite repeated reminders that risks are never far away. Tariff headlines continue to surface under this US administration, but markets seem unfazed.

Even Trump’s increasingly assertive influence over the Fed, once unthinkable, failed to shake sentiment. Downward revisions in labor market data, combined with leading indicators pointing to renewed inflationary pressure, have raised the odds of a stagflation scenario, yet even these developments have failed to dent risk appetite. After several false alarms, where spreads widened on recession fears that never materialized, investors feel little appetite to put on hedges again.

The result is a credit market that feels, to borrow from Pink Floyd, ‘comfortably numb’. Investors remain comfortably long, detached from risk, and seemingly indifferent to the warning signs around them. Complacency, it seems, has become the prevailing mood.


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