Q2 2025 Investment Grade Corporate Market Review & Outlook

Executive Summary

Mixed Signals, Compressed Spreads: What’s Next for Credit Investors?

Despite macro headwinds — elevated tariffs, geopolitical tensions and weaker economic data — credit spreads tightened during Q2, with excess returns bouncing back after April’s sell-off. Strong technicals, persistent demand for yield and moderate supply drove the rally, particularly in intermediate maturities.

Yet with valuations near decade tights and dispersion falling, the opportunity set feels increasingly narrow. In our 2Q25 Corporate Fixed Income Market Review, we focus on preserving carry while preparing portfolios for potential spread decompression, favoring sectors like Utilities, Banks and Health Insurers, and rotating into lower-dollar-price bonds where we see compelling convexity profiles.

Our 2Q25 Corporate Fixed Income Market Review explores what that means for the second half of the year — and where we’re finding more durable opportunities.

Highlights include:

• Spreads defied macro stress. Yield demand overpowered tariff shocks, slowing growth and geopolitical risks.
• We’re favoring the middle of the curve. Intermediate maturities offered better risk-adjusted value than the long end.
• Selectivity will matter more from here. With valuations tight and dispersion falling, we’re focused on sectors like Utilities, Banks and Health Insurers.

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