Markets offer attractive yields in credit without distress signals, rewarding disciplined investors who upgrade quality and avoid landmines.
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Good afternoon, I’m Anne Greenwood and welcome back to The Weekly Fix where we discuss all things US fixed income and offer actionable insights on what’s driving markets today.
It is the end of April and as we close in on the halfway point for 2026, markets are looking deceptively easy on the surface, while growing increasingly more nuanced under the hood. This is because, right now, income is doing most of the work. You’re getting equity-like yields in credit, without the traditional signals of distress. Typically, you would only see this kind of income when spreads are wide, and risks are obvious. Today, however, spreads are tight—but yields are still elevated, thanks to where base rates have settled.
And herein lies both the opportunity—and the potential peril. We are in what looks like a classic late cycle, carry driven regime. Growth is slowing but not breaking. And despite historical levels of disruption risk from energy prices to software obsolescence, markets continue to price in a muddle through outcome.
This kind of equilibrium is fragile and often works until it doesn’t, which is why we believe the investment playbook has shifted. After years of beta doing the heavy lifting, this is now an environment defined by tight spreads and increasing dispersion, meaning real winners and real losers. Ultimately creating a real opportunity for active management.
This is because in carry markets, you don’t need perfect timing or big macro calls to drive returns. What you need is discipline—security selection and avoiding landmines.
If we avoid a recession and defaults remain contained, the math is actually pretty compelling, showing a clear path to high single digit returns for US fixed income markets. But the margin for error is narrow. Today, high yield can absorb close to 200bps of widening before returns turn negative, while that same figure is closer of 70bps in investment grade. So, spreads still offer some buffer in the event of a downturn, but well under the amount of widening you would expect to see should that downturn materialize.
At the same time, technicals are quietly turning more supportive as signs of capital moving from money market funds further out the curve could bolster what is an already strong technical backdrop for credit markets and help keep spreads more contained than might otherwise be the case.
So, yes, income is powerful, but it is also masking the underlying risks. As a result, positioning matters. We think the right approach to today’s environment is owning income, while upgrading quality. Avoid overpaying for tight trading cyclical risk and remain cautious around CCCs or anything that is overly sensitive to, or overly exposed to, default risk.
At the same time, we are leaning in to identifying pockets of mispriced risk, where sentiment is driving a decoupling of price and value—like in life insurance bonds where private credit fears look overstated, or data center and fiber securitizations that trade meaningfully wide to comparable ABS.
The bottom line – income can carry you, but only if you are selective. Avoiding the losers is becoming increasingly more important than finding the winners and being cognizant of the tenuous macro environment will be critical to managing overall risks and preventing investors from over-extending portfolios in deceptively easy markets.
That’s all for today, thanks for joining and see you next week.
Key points
Elevated yields meet tight spreads – investors can capture compelling income in credit markets, but this fragile equilibrium masks underlying risks in a late-cycle environment.
Active management's moment – with limited cushion against widening spreads and real divergence between winners and losers, security selection now trumps beta-driven strategies.
Upgrade quality, hunt mispricing – the path to high single-digit returns requires avoiding cyclical risks and CCCs while identifying overlooked value in sectors like life insurance bonds and data center securitizations.