Art by Valeria Petrone
At least one lesson from 2025’s credit markets is likely to stick: The easy trade was not “own bonds.” It was knowing which bonds to own—when to hedge, when to hide in structure and when to demand more for giving up liquidity.
That’s because the big variables that shaped dispersion last year are still in play heading into 2026. Inflation is no longer roaring, but the most recent Consumer Price Index report came with an asterisk: According to the Bureau of Labor Statistics, it did not collect October survey data because of a lapse in appropriations following the federal government shutdown, and it could not retroactively collect those data. In November 2025, headline CPI was up 2.7% from one year earlier, while core CPI rose 2.6%.
Rates, meanwhile, are high enough that curve positioning can still dominate returns. Through December 2025, the two-year Treasury yield hovered at approximately 3.49% and the 10-year was about 4.15%, a spread that leaves investors paid to extend duration—but not without risk if growth or inflation surprises.
The Federal Reserve itself is signaling a slower glide path for rates. In its Dec. 10 Summary of Economic Projections, the median participant saw the federal funds rate being at 3.4% at the end of 2026, only slightly less than the current range of 3.50% to 3.75%.
In that environment, credit managers are increasingly treating 2026 less like a single call on “higher for longer”—and more like a portfolio construction problem.
Antonina Tarassiouk, a senior fixed-income analyst at Reams Asset Management, says her firm’s playbook is built around valuation and volatility, rather than forecasts.
“We don’t predict,” she says, arguing that consistency comes from taking what markets offer when prices become compelling—and staying disciplined when they are not. She said her team is cautious about “chasing further cuts on the front end,” while arguing that “long-dated U.S. real yields are extremely attractive” on valuation grounds.
Other managers are preparing for a year in which the most important dispersion may come from where and how credit is owned—public versus private, floating versus fixed, and cash bonds versus securitized structures.
Wayne Dahl, a co-portfolio manager of Oaktree Capital Management’s Global Credit strategies, says rates were the biggest driver of dispersion in public markets—and that 2025 rewarded investors that stayed in longer-duration positions. But looking ahead, he frames the challenge differently: Investors must decide how much exposure they want to things they cannot control.
“Let me cut my exposure to the stuff I can’t control, which is things like rates,” Dahl says. “Let me focus on something I can control, which is credit.”
That mindset also shapes how managers are thinking about the public-private mix in 2026. Private credit’s appeal has long been its income and apparent stability—but as the cycle matures, some investors worry that stability reflects pricing conventions as much as fundamentals.
Tarassiouk, whose firm does not invest in private credit, said she is watching what she sees as a “mismatch between supply and demand” in private markets, warning that demand for assets in which to invest can encourage excessive loan origination. Dahl argues that headline comparisons can understate the premium that private credit still offers if investors compare like-for-like, across higher-quality new issues.
At PIMCO, Sonali Pier, managing director and lead multi-sector credit portfolio manager, describes the firm as hunting for compensation “for liquidity complexity and economic sensitivity,” while flagging late-cycle concerns in parts of direct lending—including payment-in-kind features and the risk of a “steep cliff” when assets eventually reprice. She says PIMCO sees more attractive risk-adjusted opportunities in areas like asset-based finance, where hard collateral can do more of the defensive work.
According to asset managers, 2026 may be a year for structure—not just issuer selection. Pier says PIMCO prefers securitized credit “over corporate [debt] on average,” citing collateral backing and relative value. Dahl points to structured credit as a fertile hunting ground as well, including parts of collateralized loan obligation capital structures in which the buyer base thins and spreads can remain wider.
Then there is currency—back as a meaningful lever after years when many U.S. investors could ignore it. Dahl says Europe offered opportunity in 2025 for U.S. investors willing to hedge foreign-exchange exposure, as policy divergence created yield differentials worth harvesting. Pier says currency positioning is not just an output of credit selection at her firm; it is an “active risk factor” alongside rates and curve views.
As investors eye the year ahead, where to invest is less about whether credit “works” and more about whether investors are being paid enough, in the right places, for the specific risks they are taking.
“The label doesn’t define the risk or the return,” Pier says.
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Tags: Bond Market, credit management risk, credit markets, fixed income strategies