Gaining an Active Edge in Investment Grade Credit

Investment grade credit enters 2026 from a position of strength, after solid 2025 returns in both euro and US dollar markets despite a volatile macro backdrop. Tight spreads and rising dispersion mean investors may need to look beyond traditional passive benchmarks, where rigid index rules can miss pre-index and off-benchmark bonds that offer attractive risk-adjusted value. At the same time, the risk of spread widening tied to AI sentiment, M&A, idiosyncratic events, and geopolitics argues for active sector, regional, and instrument selection to preserve flexibility and resilience.

The rapid growth of AI-related issuance and “reverse Yankee” deals is expanding the opportunity set but also increasing benchmark concentration in a small group of large issuers. Against this backdrop, active management focused on security selection, dynamic hedging tools such as CDS, and disciplined participation in new issues may be key to capturing expected mid-single-digit total returns while managing downside risk in 2026.