IG Credit in 2026: Attractive Yields Still Doing the Heavy Lifting
Head of U.S. Investment Grade Corporates
Co-Head of Client Portfolio Management, Fixed Income
With spreads tight and issuance set to rise, elevated all-in yields remain the key force anchoring investment grade credit returns in 2026.
Executive summary
High coupons anchor returns despite tight valuations.
U.S. investment grade (IG) credit delivered solid absolute returns in 2025, even as spreads remained near multi-decade tights for much of the year. Markets proved resilient through tariff uncertainty, geopolitical noise, and episodic volatility, with strong technicals and stable fundamentals allowing spreads to remain compressed. While valuations were not compelling on a relative basis, elevated all-in yields once again did the heavy lifting for returns, reinforcing the importance of income as the dominant driver of IG performance.
Key trends in 2025
- Spreads weathered multiple volatility shocks, including the April tariff-driven selloff, and ultimately finished the year little changed, underscoring the durability of demand for IG credit.
- Performance dispersion widened across sectors and maturities, with financials and the intermediate part of the curve outperforming amid strong balance sheets and favorable supply dynamics.
- A resurgence in issuance—particularly from large technology and AI-related issuers late in the year— began to pressure some sectors and the long end of the curve, even as overall fundamentals remained healthy.
2026 outlook
IG credit enters 2026 with attractive starting yields, a supportive macro backdrop, and solid issuer fundamentals. Although spreads are tight and net issuance is expected to rise—driven by AI-related capex and a potential pickup in M&A—income should continue to anchor total returns. Historically, starting yields near current levels have provided a meaningful cushion against spread widening, making negative total returns unlikely absent a material deterioration in growth or policy conditions.
- Higher gross and net issuance may temper spread performance but should also create opportunities for active security selection.
- Fundamentals remain solid, with stable leverage, strong interest coverage, and a continued bias toward positive ratings migration.
- The macro environment should remain constructive, though elevated policy and political risks warrant close monitoring.
A note about risk: Bonds are subject to market, issuer, credit, prepayment, extension and other risks, and their values may fluctuate. Indexes are unmanaged and not available for direct investment.