Credit markets today: what income investors should know

Credit markets have held up through a genuinely difficult period: geopolitical shocks, renewed inflation concerns, and pockets of stress in private credit. Corporate earnings remain broadly supportive, demand for yield is healthy, and spreads have not blown out.

“The headline picture is one of resilience,” says the Robeco Credit Income team. “But that surface-level stability can obscure what is happening in the underlying structure of the market.” Endowus spoke with Robeco’s credit team about what they observe, how AI is reshaping bond fundamentals, and why avoiding the wrong bonds may matter as much as finding the right ones.

This article was authored by Endowus in collaboration with Robeco.

The credit market today: resilience on the surface, divergence underneath

Spreads sit near cyclical tights, meaning markets are pricing in a benign scenario. That leaves limited buffer if growth expectations shift, inflation proves stickier than anticipated, or rates move unexpectedly. Cyclically exposed sectors — autoCredit markets have held up through a genuinely difficult period: geopolitical shocks, renewed inflation concerns, and pockets of stress in private credit. Corporate earnings remain broadly supportive, demand for yield is healthy, and spreads have not blown out.

“The headline picture is one of resilience,” says the Robeco Credit Income team. “But that surface-level stability can obscure what is happening in the underlying structure of the market.” Endowus spoke with Robeco’s credit team about what they observe, how AI is reshaping bond fundamentals, and why avoiding the wrong bonds may matter as much as finding the right ones.

This article was authored by Endowus in collaboration with Robeco.

The credit market today: resilience on the surface, divergence underneath

Spreads sit near cyclical tights, meaning markets are pricing in a benign scenario. That leaves limited buffer if growth expectations shift, inflation proves stickier than anticipated, or rates move unexpectedly. Cyclically exposed sectors — autos, consumer, and media — face margin pressure from higher input costs and weaker pricing power.

“The next phase of this market will be less about broad directional calls and more about selectivity and risk control,” the team notes, “as underlying vulnerabilities begin to surface in specific segments.”

When markets move broadly in one direction, individual holding selection matters less. When dispersion widens, the quality of each credit position carries considerably more weight.

What income investors may be underestimating about AI

“AI is already influencing credit — but very unevenly,” the Robeco Credit Income team explains. On one side, AI supports growth and bond demand in technology and infrastructure. On the other, it creates genuine structural pressure in software and service-oriented businesses exposed to automation. Rising default risk and weaker cash flow resilience are already visible in parts of private credit.

The subtler concern is leverage. The AI capital expenditure boom is driving higher balance-sheet pressure even among strong issuers. New energy infrastructure bottlenecks introduce execution and cost risks that are difficult to price. Margin erosion in more vulnerable sectors tends to be gradual — invisible in aggregate data until it is not.

In response, the team has been gravitating toward businesses with hard assets and low obsolescence risk — the HALO theme — structurally less exposed to AI-driven disruption. Recent shifts toward Latin American and US corporate issuers reflect this view, as these regions offer natural insulation from current energy supply pressures as net commodity exporters.

What a contrarian approach to credit investing looks like in practice

“Contrarian means being more cautious when markets look fully priced and more willing to add risk when markets dislocate and valuations improve,” the Robeco Credit Income team says.

In the current environment, an approach anchored in avoiding credit deterioration may offer a more resilient foundation for income than simply seeking the highest available yield. In addition, Robeco’s ex-US diversification is a potential differentiator, reflecting the distinct industry composition of European and emerging markets.

But the contrarian posture works in both directions. During the “Liberation Day” sell-off following the announcement of reciprocal tariffs, the team added credit exposure at more attractive spreads, then reduced risk as markets recovered — a pattern echoed during the 2023 stress in bank debt.

This requires a view of intrinsic value that does not shift with market sentiment. The strategy operates without a hard benchmark constraint, allowing dynamic allocation across investment grade, high yield, and emerging market bonds, guided by a minimum average credit quality of BB-.

The Robeco team’s case for issuer quality over yield

“Our quality bias is not about sacrificing yield — it is about protecting it over time,” the team says. Their argument: investors systematically overpay for higher-risk credits when spreads are tight and memories of past losses are distant. The real driver of long-term income is not maximising yield at a given moment; it is avoiding the defaults and downgrades that erode it.

“Managing a corporate bond portfolio is not primarily about selecting the best bonds — it is about avoiding the losers.”

The structural allocation to BBB and BB-rated bonds reflects this balance — accordingto Robeco, high enough in quality to limit default exposure, while still capturing meaningful income above government bonds. Robeco has been investing in credit markets for more than 50 years, with a global fixed income platform comprising more than 100 professionals combining fundamental, quantitative, and ESG-integrated research.

For avoidance of doubt, the Fund does not constitute a green or ESG fund pursuant to applicable regulatory guidelines.

Investment implications

For income-focused investors in Hong Kong, credit can serve as a meaningful component of a diversified portfolio — but the structure of that exposure matters more in a dispersed market. In addition, Robeco's ex-US diversification is a potential differentiator, reflecting the distinct industry composition of European and emerging markets. 

In our view, the case for credit rests on income generation and diversification from equities, not the expectation of capital gains. Sizing should be calibrated to income needs, risk tolerance, and investment horizon.

Endowus offers access to Robeco’s Credit Income Fund HKD-Hedged (Dist.) on the Fund Smart platform. Speak with an Endowus adviser to understand how credit may fit your broader financial plan.

Frequently asked questions

What is the Robeco Credit Income Fund?

The Robeco Credit Income Fund is an actively managed, multi-asset credit strategy investing across investment grade, high yield, and emerging market bonds globally. It maintains a minimum average credit quality of BB- and targets resilient income through a full credit cycle, with a quality bias and contrarian approach to positioning.

Why might quality matter more than yield when investing in credit?

Higher yields in credit markets typically reflect higher credit risk. A quality-focused approach prioritises avoiding defaults and credit deterioration over maximising current yield, on the basis that protecting income over time may produce better long-run outcomes. Past performance is not a guide to future performance or returns.

How does AI affect credit markets?

AI is influencing credit unevenly — supporting growth in technology infrastructure while creating structural pressure in software and service businesses exposed to automation. For credit investors, this makes issuer and sector selectivity more important than broad market exposure.

s, consumer, and media — face margin pressure from higher input costs and weaker pricing power.

“The next phase of this market will be less about broad directional calls and more about selectivity and risk control,” the team notes, “as underlying vulnerabilities begin to surface in specific segments.”

When markets move broadly in one direction, individual holding selection matters less. When dispersion widens, the quality of each credit position carries considerably more weight.

What income investors may be underestimating about AI

“AI is already influencing credit — but very unevenly,” the Robeco Credit Income team explains. On one side, AI supports growth and bond demand in technology and infrastructure. On the other, it creates genuine structural pressure in software and service-oriented businesses exposed to automation. Rising default risk and weaker cash flow resilience are already visible in parts of private credit.

The subtler concern is leverage. The AI capital expenditure boom is driving higher balance-sheet pressure even among strong issuers. New energy infrastructure bottlenecks introduce execution and cost risks that are difficult to price. Margin erosion in more vulnerable sectors tends to be gradual — invisible in aggregate data until it is not.

In response, the team has been gravitating toward businesses with hard assets and low obsolescence risk — the HALO theme — structurally less exposed to AI-driven disruption. Recent shifts toward Latin American and US corporate issuers reflect this view, as these regions offer natural insulation from current energy supply pressures as net commodity exporters.

What a contrarian approach to credit investing looks like in practice

“Contrarian means being more cautious when markets look fully priced and more willing to add risk when markets dislocate and valuations improve,” the Robeco Credit Income team says.

In the current environment, an approach anchored in avoiding credit deterioration may offer a more resilient foundation for income than simply seeking the highest available yield. In addition, Robeco’s ex-US diversification is a potential differentiator, reflecting the distinct industry composition of European and emerging markets.

But the contrarian posture works in both directions. During the “Liberation Day” sell-off following the announcement of reciprocal tariffs, the team added credit exposure at more attractive spreads, then reduced risk as markets recovered — a pattern echoed during the 2023 stress in bank debt.

This requires a view of intrinsic value that does not shift with market sentiment. The strategy operates without a hard benchmark constraint, allowing dynamic allocation across investment grade, high yield, and emerging market bonds, guided by a minimum average credit quality of BB-.

The Robeco team’s case for issuer quality over yield

“Our quality bias is not about sacrificing yield — it is about protecting it over time,” the team says. Their argument: investors systematically overpay for higher-risk credits when spreads are tight and memories of past losses are distant. The real driver of long-term income is not maximising yield at a given moment; it is avoiding the defaults and downgrades that erode it.

“Managing a corporate bond portfolio is not primarily about selecting the best bonds — it is about avoiding the losers.”

The structural allocation to BBB and BB-rated bonds reflects this balance — accordingto Robeco, high enough in quality to limit default exposure, while still capturing meaningful income above government bonds. Robeco has been investing in credit markets for more than 50 years, with a global fixed income platform comprising more than 100 professionals combining fundamental, quantitative, and ESG-integrated research.

For avoidance of doubt, the Fund does not constitute a green or ESG fund pursuant to applicable regulatory guidelines.

Investment implications

For income-focused investors in Hong Kong, credit can serve as a meaningful component of a diversified portfolio — but the structure of that exposure matters more in a dispersed market. In addition, Robeco's ex-US diversification is a potential differentiator, reflecting the distinct industry composition of European and emerging markets. 

In our view, the case for credit rests on income generation and diversification from equities, not the expectation of capital gains. Sizing should be calibrated to income needs, risk tolerance, and investment horizon.

Endowus offers access to Robeco’s Credit Income Fund HKD-Hedged (Dist.) on the Fund Smart platform. Speak with an Endowus adviser to understand how credit may fit your broader financial plan.

Frequently asked questions

What is the Robeco Credit Income Fund?

The Robeco Credit Income Fund is an actively managed, multi-asset credit strategy investing across investment grade, high yield, and emerging market bonds globally. It maintains a minimum average credit quality of BB- and targets resilient income through a full credit cycle, with a quality bias and contrarian approach to positioning.

Why might quality matter more than yield when investing in credit?

Higher yields in credit markets typically reflect higher credit risk. A quality-focused approach prioritises avoiding defaults and credit deterioration over maximising current yield, on the basis that protecting income over time may produce better long-run outcomes. Past performance is not a guide to future performance or returns.

How does AI affect credit markets?

AI is influencing credit unevenly — supporting growth in technology infrastructure while creating structural pressure in software and service businesses exposed to automation. For credit investors, this makes issuer and sector selectivity more important than broad market exposure.