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Fixed income

Why credit appeals in today’s volatile markets

June 04, 2026 - 4 min

The recent events have shown that credit is a resilient asset class with relatively controlled volatility versus other asset classes.

 

How are geopolitical events impacting credit assets? Are these effects transitory?

The credit market did suffer, but we have already seen a V-shaped recovery. The main things to pay attention to are energy prices, interest rates, and how lasting the conflict might be. The rise in energy prices directly impacts inflation and growth, and therefore interest rates. In parallel, this military conflict is turning into an economic war, putting the focus on the reopening of the Strait of Hormuz. When will that happen and what will the economic fallout of the conflict really be?

No one knows and everybody is on standby today. But one thing is certain. It will take time before we have a clear picture of the economic effect of this conflict. So the current context highlights the particular interest credit offers. Not only is the carry a big advantage but corporates have also sound balance sheets and are not very leveraged, so the credit asset class remains appealing and when you add the tools of a total return strategy, you see a very attractive combination for investors.

 

What are the key credit profiles you believe are best positioned?

Firstly, we believe quality is best positioned in the current environment marked by increased uncertainty. A cautious approach tends to favor investment grade bonds and high yield. Secondly, we also believe that US growth should remain more resilient than in Europe. So we are now more cautious on Europe, especially regarding cyclical industries and corporates that will suffer from higher energy costs. Overall, the best positioned credit profiles are those that can benefit from the higher energy prices and have limited international exposures. So we don't focus as much on sectors such as paper & packaging and automotive, but we do like the banking sector and one industry that obviously benefits greatly today is the defense industry.

 

How has your outlook for growth and its impact across the credit spectrum changed?

In general, in times of slower growth, the credit asset class performs. What we see today is that the performance should come mainly from carry, as spreads could widen a bit in the coming months with volatility.

All this leaves a credit market with decent returns, 3.5% on investment grade, more than 5% on high yield, higher than monetary yields or expected inflation.

Default rates are not our main concern. We believe growth will indeed slow down, but we don't see a recession coming. And given that fundamentals are still good and corporates have room to maneuver and adapt, we see the full benefits of active management in the credit asset class. In this uncertain and volatile environment, which is going to remain, having the ability to react very quickly, to hedge the portfolio, to monitor duration, and to get longer risk if market expectations improve, this ability to react quickly makes total return credit strategies very appealing.

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