Credit Spreads Are Pricing a Soft Landing. We're Not So Sure.

Investment-grade credit spreads have compressed to levels last seen before the 2022 drawdown, a signal of confidence in a benign default cycle. We think that confidence is only partially earned.

The setup

Issuance has been well absorbed, and all-in yields continue to draw strong demand from insurers and pensions extending duration. That technical strength is real and durable.

The risk we're pricing

High-yield issuers with 2027 maturities face a refinancing wall at materially higher coupons than their existing stock. We favor a barbell: high-quality IG for carry, and selective short-duration high-yield where covenants are strong.

Positioning

We have trimmed BBB exposure into strength and added CDS protection on a small basket of leveraged issuers with weak interest coverage.