Credit Outlook – Numbed by Risks
25 NOV, 2025
By Robeco
By Sander Bus – CIO High Yield, Portfolio Manager at Robeco
As the Pink Floyd song Comfortably Numb reminds us, a detached attitude may feel reassuring in the short term, but it risks leaving us unprepared when reality truly sets in. Today’s credit markets seem to embody this very paradox.
The third quarter of 2025 proved no less significant than the second. Spreads tightened further, despite repeated warnings that risks remain ever-present. Markets appear unfazed by ongoing headlines on tariffs emerging under the current U.S. administration.
Even the growing influence of Trump over the Fed, once unthinkable, has failed to dent market sentiment. Downward revisions to labor-market data, combined with fresh inflationary pressures indicated by leading indicators, have increased the likelihood of stagflation, yet even these developments have not shaken investors’ risk appetite. After several false alarms—periods when spreads widened on recession fears that never materialized—investors have little desire to put hedges back in place.
The result is a credit market that seems, in the words of Pink Floyd, “numbed by risk.” Investors are comfortably holding long positions, seemingly indifferent to the warning signs around them. Excess optimism has become the prevailing mood.
Credit markets currently look calm, supported by strong technical factors. The challenge now is generating income while staying prepared for any re-emergence of risks.
Spreads are very tight, but sentiment remains positive. Despite persistent risks of stagflation and geopolitical tensions, investors are optimistic and credit markets show few signs of strain.
Strong fundamentals continue to underpin credit strength. High demand, oversubscribed issuance, and increased liquidity keep spreads resilient even at compressed levels.
Quality is crucial in today’s market. We prefer euro-denominated credit over U.S. dollar credit, a shorter spread duration, and high-quality IG bonds, while maintaining a disciplined and selective exposure to HY.
Opportunities:
- High-quality credit remains the anchor: The upper tier of the investment-grade segment continues to offer the best balance between yield and resilience at current valuation levels.
- Europe stands out vs. the U.S.: Shorter duration, supportive fundamentals, and greater room for spread compression make euro credit relatively attractive.
- Emerging markets remain strong: Deleveraging, slowing inflation, and solid local demand sustain resilience, with Asia continuing to stand out as a leading region.
