Schroders Investment Research Hub

Schroders' research across USD, EUR, and GBP credit markets emphasizes that credit spreads have reached exceptionally tight historical levels, with Investment Grade valuations currently situated in the bottom decile of their 20-year history. Despite these tight valuations, corporate fundamentals like leverage and interest coverage remain generally healthy, supporting attractive yields relative to cash. However, the reports identify emerging stress signals, specifically citing rising US high-yield default rates and a negative trend in credit migration as 'fallen angels' begin to outpace 'rising stars.' A dominant technical theme highlighted is the surge in bond issuance from technology hyperscalers, such as Alphabet and Meta, which is materially impacting sector weightings and spread differentials. Furthermore, the resurgence of M&A activity is expected to act as a significant technical driver for the credit landscape heading into 2026. Investors are cautioned that while the environment remains stable for now, the combination of extreme valuation tightness and early stress indicators warrants close monitoring.