Payden & Rygel: Macro Outlook Investment Grade Credit

December 17, 2025

Q&A with Tim Crawmer CFA, Director and Global Credit Strategist

How do you assess the macroeconomic outlook for global investment grade credit today?

Looking ahead to 2026, the global macroeconomic environment is expected to remain solid, with growth returning to trend levels. While some fragilities persist in specific labor markets, the risk of tariff-driven inflation is viewed as limited. Inflation should continue to moderate, allowing central banks to move closer to more neutral policy rates.

Corporate fundamentals remain strong, supported by solid balance sheets, manageable refinancing needs, and low default rates. Liquidity in the corporate investment grade (IG) market has also improved, offering investors a broad range of issuers and sectors to build well-diversified portfolios.

In a backdrop of healthy fundamentals, declining interest rates, and historically attractive yields (around 3% on the Bloomberg Global IG Corporate Index, euro-hedged), we expect the asset class to continue attracting capital. However, the scope for further spread compression is limited, meaning performance is likely to be driven primarily by income, making active management essential to mitigate downside risks.

What are the distinguishing features of Payden & Rygel’s Global Investment Grade Corporate Bond strategy?

The strategy combines a global macro perspective with high-conviction bottom-up analysis to construct a diversified corporate bond portfolio. It is built on global research collaboration and Payden & Rygel’s long-standing experience in international corporate credit.

Portfolio management is characterized by a flexible approach that allows the expression of global views while maintaining rigorous risk discipline. Each investment is carefully assessed in terms of credit quality, liquidity, and capital structure to ensure appropriate risk compensation. The team benefits from an integrated research model supported by direct engagement with company management, enabling the identification of mispriced opportunities across regions and sectors. The strategy also places strong emphasis on prudence, aiming to avoid potential pitfalls through careful position sizing, a focus on liquidity, and a thorough assessment of issuers’ behavior toward bondholders.

Looking ahead to the next 12–18 months, what are your strongest convictions on the global IG market, and where do you see the main risks?

Dispersion in the investment grade corporate market remains low, and spreads are close to post–financial crisis lows, limiting upside price potential. That said, a supportive economic environment could keep spreads broadly stable, with income as the primary driver of returns.

We see opportunities in the banking, REIT, and automotive sectors. Banks display strong balance sheets and solid profitability, making subordinated exposures attractive. In REITs, declining interest rates combined with still-elevated spreads create selective opportunities, while the automotive sector could benefit from more supportive policies and a less tense tariff environment.

We are more cautious on the chemical sector, particularly in Europe, where oversupply, high energy costs, and weak demand continue to weigh on fundamentals.

Corporate bond supply is expected to increase, driven by the expansion of AI-related infrastructure, rising energy demand, and higher M&A activity. This could put pressure on spreads, especially if confidence in the benefits of new technologies were to fade. In addition, elevated government bond issuance could limit curve flattening and influence the shape of investment grade credit curves.