Rates Still in the Driver's Seat

Global credit markets face total return headwinds as rising bond yields offset carry, despite range-bound spreads and underwhelming supply in the USD IG sector. Technical tailwinds persist in loans and USD IG, driven by lower-than-expected issuance and non-seasonal AI/M&A financing activity.

Key Takeaways

• 1.Rising global bond yields present a significant mathematical headwind to 2026 total return forecasts, particularly for USD Investment Grade markets.
• 2.Credit supply in May has been underwhelming in USD IG, especially when adjusted for duration, though HY supply remains robust in both USD and EUR.
• 3.The specific drivers of rate moves (e.g., growth optimism vs. labor market weakness) are more critical for credit risk appetite than the absolute direction of yields.

Table of Contents

• Outlining a hypothetical scenario for (lower) full-year total returns
• May supply: More muted than expected (at least so far)
• A range of market implications
• Looking ahead: Seasonal patterns may be less relevant for AI and M&A related deals
• Forecast dashboard: Spreads, returns, issuance, defaults, and ratings migrations
• Forecast dashboard: Relative value views
• Performance dashboard: Cash and synthetic markets
• Performance dashboard: Sectors
• Performance dashboard: USD Credit ETFs
• Performance dashboard: Bond-level dispersion
• Relative value dashboard: Excess spreads in the USD and EUR markets
• Performance dashboard: Biggest movers in the USD bond market
• Valuation dashboard: Percentile ranks for spreads and yields
• Valuation dashboard: Sizing the carry in USD and EUR fixed income markets
• Valuation dashboard: Macro index volatility
• Valuation dashboard: CLOs
• USD IG and HY Sentiment indicators
• Microstructure dashboard: Top 20 most traded capital structures in the USD IG and HY markets
• Microstructure dashboard: Liquidity conditions in the USD secondary bond market
• Flow dashboard: Mutual fund and ETF AUM
• Flow dashboard: Mutual fund and ETF flows
• Flow dashboard: Upcoming coupon and principal payments
• Flow dashboard: Positioning in macro indices
• Flow dashboard: ECB QT
• Foreign demand and hedging cost
• Primary market dashboard: USD gross issuance
• Primary market dashboard: EUR gross issuance
• Primary market dashboard: Use of proceeds
• Primary market dashboard: Net issuance
• M&A volume
• M&A volume (Strategic deals only)
• Primary market dashboard: CLO creation and refinancing
• Primary market dashboard: Maturity walls
• Default and ratings migration dashboard: Default trends
• Default and ratings migration dashboard: Upgrades and downgrades

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