The most important question in credit today is not whether yield is still available—quite simply, we believe it is. The more important question is whether that yield is attached to risks investors can understand, control and are being adequately paid to own. In today’s market, that distinction matters.

On the surface, markets have remained resilient. Equity indexes have continued to find support from a narrow set of themes, most notably artificial intelligence-linked capital spending and higher-end consumer resilience. Credit spreads have retraced a meaningful portion of the February and March weakness, fund flows have improved, and primary markets have reopened selectively. Capital is still available, but it is becoming more conditional.

Meanwhile, investors still want yield, but they are less willing to forgive mistakes. As such, the task for managers is not simply to find more yield; it is to find yield with what we consider to be better architecture around it.

That view shaped how we entered the year. We reduced risk in areas where returns appeared asymmetric, particularly where underwriting standards had weakened or liquidity depended too heavily on continued refinancing availability. When volatility emerged in February and March, that prior de-risking mattered. It gave us the opportunity to return capital, preserve liquidity, and re-engage selectively where we believed the form of risk was clear.

When markets are broad and forgiving, exposure can be enough. With markets as they are today, outcomes depend more on how risk is sourced, underwritten, documented, collateralized and controlled. By focusing on areas where credit meets structure, we believe complexity can potentially become a source of durable premium rather than a source of hidden risk.

Credit markets remain supported by elevated yields, but the opportunity set looks different across sectors. While spreads remain tight in many areas, there are still pockets of opportunity where we see yields remain high or where spreads have widened, creating a better case for selectivity.¹

One of the most notable moves over the previous month came from the lower-quality segment of high yield. US corporate high yield CCC spreads widened by roughly 47 basis points (bps), while yield-to-worst (YTW) rose to 11.5%. Meanwhile, the broader high yield sector saw spreads tighten by about 15 bps and currently remain near the bottom of their 20-year range. This divergence may suggest that investors are being more selective around lower-quality issuers.²

Municipals remain a notable source of tax-equivalent income, even as recent moves from the prior month were relatively modest. Investment grade municipals (IG Muni) look strong on a relative basis, supported by a competitive yield. High yield municipals (HY Muni) saw little change in yield, while spreads remain tight relative to history, suggesting income remains appealing but risk compensation is more limited. Short duration high yield municipals (SDHY Muni) also saw little change in yield, while spreads tightened by roughly 11 bps.³

Leveraged loans also stood out, with yields rising to roughly 8.7% and spreads widening by approximately 20 bps over the last month. The higher all-in yield may continue to appeal to investors seeking floating-rate income, while the modest spread widening suggests some repricing of credit risk or softer market technicals.⁴

Securitized credit also saw yields move higher over the past month across asset-backed securities (ABS), mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS), while spread changes were more mixed but overall minor with only MBS seeing spreads widen by roughly 2 bps.⁵

Overall, income remains available, but the opportunity set is uneven. With spreads still tight in many areas, selectivity remains important.