2H25/1H26 US Outlook: Next Year's Business
Winnie Cisar - Global Head of Strategy, CreditSights
Zachary Griffiths, CFA - Head of IG & Macro Strategy, CreditSights
Brian Perez - Analyst, Credit Strategy, CreditSights
Kathleen Tang - Analyst, Strategy, CreditSights
Luke Jensen - Analyst, Quantitative Strategy, CreditSights
14 July 2025
Insights into the US corporate credit outlook for 2025-2026 and its implications for spreads, investor positioning, and market risks, including:
- Recommended positioning for US credit: Learn why a cautious, underweight stance is advised for US investment grade, high yield, and broadly syndicated loans, with a focus on quality and duration over credit risk.
- Spread and yield outlook: Understand the drivers behind projected widening to historical median levels for IG and HY spreads, and implications for total returns across major credit asset classes.
- Fed policy and interest rate expectations: Explore how tariff-driven inflation and macro volatility may keep the Fed on hold in 2025 and trigger rate cuts in 2026, affecting Treasury yields and curve shape.
- Investment themes and sector strategy: Discover preferred ratings, curve positioning, and sector allocations, including why single-As and a barbell approach in HY are favored amid weakening fundamentals.
- Key risks and alternative scenarios: Review the main bull and bear case risks—such as recession, geopolitical shocks, and Fed independence—and how these could impact spreads, loan prices, and investor strategy.
Executive Summary
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Our targets for US IG and HY spreads for 6/30/26 are 130 bp and 450 bp, respectively, marking further spread widening from our unchanged YE25 targets of 110 bp and 350 bp, respectively. We are sticking with our $94 price target on the US BSL index for YE25 and look for little change in our base case through 1H26.
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We continue to expect the Fed to keep policy unchanged through YE25 as tumultuous tariff implementation results in noisy macro data and inflation re-accelerates. This creates risk the Fed is ultimately behind the curve and begins cutting fairly aggressively in 1H26 in our base case, lowering the policy rate 100 bp to 350 bp.
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While we think Treasury yields can rise again through the end of the year, perhaps even back to the year-to-date peak of 4.80%, we expect yields to move meaningfully lower in 2026. Our base case forecast is that the 10y is around 3.5% in mid-2026 as the Fed begins cutting quickly, markets reprice a lower policy rate trough, economic growth weakens and risk sentiment deteriorates.
Relative Value
While the first half of 2025 has oftentimes felt chaotic from a macro perspective, credit spreads are effectively unchanged from the start of the year at 83 bp in IG (+1 bp) and 297 bp in HY (+5 bp). While tariff policy is ever-evolving, our assumptions that tariff policy would be priority #1 for the incoming Trump administration and likely more severe than the market anticipated have generally held true. Thus far, the market has digested the uncertainty and negative growth expectations of tariffs remarkably well. In our view, credit market resilience has been underpinned, first and foremost, by robust techincals (Global Credit Compass: Fund Flows June 12-June 18) and further supported by a solid fundamental starting point (US Strategy: IG Leverage Report (1Q25), US Strategy: HY Leverage Report (1Q25)).
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