Macroscope | Goldilocks prevails: Investing in 2026
Resilient growth and fading inflation define a recalibrated investment landscape for 2026.
After a strong run for global credit markets in 2025, investors heading into 2026 face a more complex and selective environment. Credit markets delivered robust total returns last year, supported by tightening spreads that ended 2025 near 10-year lows in some segments. However, with valuations now stretched and the risk of spread normalisation rising, investors will need to work harder to protect capital and generate returns.
Darpan Harar, Portfolio Manager, Multi Asset Credit: “Credit markets delivered robust total returns in 2025, after shrugging off short-lived wobbles around political risk. If spreads widen and revert to more ‘normal’ levels this year, investors could see these gains eroded – that’s an important risk to navigate.”
While government bond yields remain elevated, volatility and growing concerns around public finances have undermined risk-adjusted returns in sovereign markets. Against this backdrop, credit continues to offer an attractive source of income — provided investors are selective. Justin Jewell, Portfolio Manager, Multi Asset Credit: “Credit still offers a great source of income, which is a key driver of long-term investment returns, but not all yield sources are equal.”
Rather than narrowing opportunity sets, selectivity requires casting a wide net across global credit markets, including specialist areas that may offer diversification and protection against interest-rate risk. “By exploring specialist areas of the market, investors can limit their exposure to interest-rate risk relative to more mainstream markets,” Jewell noted, highlighting the role of floating-rate structures in an uncertain monetary policy environment.
Recent high-profile stresses in parts of the US private credit market have raised concerns about broader systemic risks. These pressures remain contained and are largely explained by excesses built up during the leverage buyout boom of 2020–2022.
“We do not think this is a systemic issue,” Harar continued. “Stress has been relatively contained and is largely explained by a hangover from the leverage buyout boom.” Public credit markets present a different picture. Despite becoming more expensive, areas such as high yield have generally maintained stronger average credit quality, with the riskiest lending increasingly taking place outside public markets. Even so, careful analysis of underlying fundamentals remains essential given the wide dispersion in creditworthiness.
After several years of supportive technical conditions, supply-and-demand dynamics are set to change. Increased issuance — particularly linked to investment in artificial intelligence — will lift supply, while a fall in yields may dampen demand. With credit spreads anchored at historically low levels, this combination points to higher volatility in parts of the investment-grade market. More favourable technical conditions are expected to emerge in specialist areas such as loans, bank capital and selected segments of the high-yield market.
As the era of “easy income and capital growth” draws to a close, credit investors will need to work harder. Tight spreads mean mainstream credit indices are likely to disappoint, while divergence across sectors and issuers is set to increase.
“A key characteristic of the environment in 2026 is likely to be increasing divergence across economic sectors,” Harar concluded, pointing to shifting consumption patterns and a widening gap between winners and losers across the corporate landscape. This divergence creates a rich opportunity set for bottom-up investors. Portfolios are best constructed around a core of high-yielding issuers with defensive characteristics, while remaining active and flexible in capturing opportunities as they arise across the global credit universe.