Payden & Rygel: Value in IG credit
IG corporate bonds remain a compelling source of income and portfolio resilience in 2026, even as macroeconomic and geopolitical uncertainty persists.
Despite a modestly negative first quarter and a more tempered outlook for returns compared with 2025, we see attractive all‑in yields and continued strong demand supporting the asset class.
After a strong year for IG in 2025, Natalie Trevithick, Managing Director and Head of Investment Grade Corporates at Payden & Rygel, expects returns to 'normalize', driven primarily by income rather than outsized price gains.
While recent volatility and developments such as the conflict in Iran have complicated the macro backdrop, she notes that higher yields now provide investors with a meaningful cushion against further market swings.
'Markets move ahead of policy, and there is no reason for investors to sit on the sidelines waiting for the Federal Reserve', said Trevithick. 'At current levels, all‑in yields of roughly 5% to 5.25% in investment‑grade credit represent an attractive risk‑return profile for long‑term investors.'
Trevithick emphasized that, contrary to some commentary, investment‑grade bonds have not simply started behaving like equities. The asset class has remained relatively stable compared with stocks, with record issuance—approximately $465 billion in the first quarter, up 20% year over year—being readily absorbed as deals are often multiple times oversubscribed. Strong balance sheets and robust free cash flow among many large‑cap, often technology‑related issuers further underpin the market’s resilience.
Concerns that heavy new supply might overwhelm demand have so far not materialized. 'There is still substantial cash on the sidelines, and in periods of uncertainty, investors tend to migrate toward higher‑quality assets,' Trevithick said. 'Even with elevated issuance, we have not seen meaningful spread widening, which tells us the market is handling the volume well.'
She also addressed the interaction between private credit and the public investment‑grade market. While some stress in areas such as business development companies has spilled over into banks and insurers with private‑credit exposure, Trevithick views the systemic risk as limited and notes that public IG’s daily liquidity is a key advantage amid shifting conditions.
On sector positioning, Trevithick describes the team as broadly constructive rather than focused on a single 'silver bullet' opportunity, with favored areas including global systemically important banks, utilities tied to AI‑driven power demand, and select technology issuers. She cautions that spreads are not 'cheap,' making diversified exposure across A and BBB‑rated credits more important than hunting for obvious bargains.
Active management remains central to Payden & Rygel’s approach in this environment. With roughly $2 trillion in annual issuance and a market approaching $10 trillion, Trevithick notes that portfolio turnover of about 50% reflects a rich opportunity set for capturing new‑issue concessions, adjusting duration and sector tilts, and exploiting relative‑value opportunities.
'Risk is increasingly issuer‑specific rather than sector‑wide, which makes rigorous credit research critical,' she said. 'We expect greater dispersion between outperformers and underperformers, and avoiding weaker credits will be just as important as finding the winners.'
Within multi‑asset portfolios, Trevithick continues to view investment‑grade credit as a core allocation that can provide attractive income, relative stability, and diversification alongside equities and other risk assets. She expects episodes of volatility to be largely rate‑driven and temporary, with credit fundamentals and spreads remaining comparatively stable.
'We are paying close attention to the macro environment, but we are not reacting to every headline,' Trevithick concluded. 'By focusing on long‑term fundamentals and using active management to navigate issuer‑level risks, we believe investment‑grade credit can continue to play a critical role for investors in 2026 and beyond.'