Rates are repricing. Credit isn't…yet
Look at the numbers. The US 10-year Treasury yield held near 5.34% on 1 October 2026, its highest level since 2002.[i] German Bunds are at their cheapest since 2011 and French OATs have been hit even harder this week: the 10-year OAT yield climbed to around 4.85%, its highest since 2008.[ii]
And corporate credit? Barely a scratch. US investment-grade spreads sit around 80 basis points[iii] over Treasuries, compressed to their tightest range since December 2008. The market has decided that the rates sell-off is a sovereign and duration story, not yet an IG credit story.
The calm is already cracking beneath the surface
Index-level tightness is hiding what's really going on. Guggenheim Investments note that "index-level moves masking divergences across sectors and issuers as heavy new issuance and AI-driven disruption create both risks and opportunities beneath the surface”.[iv]
Credit dispersion within investment grade has been limited in 2026, aside from a brief March sell-off following the start of the Iran war. The option-adjusted spread between BBB and A[v] corporate issuers has been largely stable, at about 30 bps between May and 30 September.
In contrast, dispersion is pronounced in lower-quality credit. CCC spreads have widened to 992 bps from 626 bps at the end of December 2025. The spread gap between CCC and B debt has nearly doubled, to 689 bps on30 September from 342 bps at the end of December 2025, suggesting emerging stress in the credit market.
Bloomberg US Aggregate A versus BBB bonds historical spreads. Source: Bloomberg Finance L.P., accessed 1 Oct 2026.
Even within investment grade, investors will need to be selective and differentiate carefully among issuers.
As higher for longer yields push up refinancing costs, the cushion from strong fundamentals and technical demand starts to erode. Spreads start to widen unevenly, issuer by issuer. That's when the trade changes and the next phase moves to credit selection.
What could be a determinant for better credits?
There are two key factors that could separate the better credits from wider spreads.
The first is balance sheet resilience - leverage, interest coverage, refinancing maturity profiles, and access to diverse funding pools. The traditional fundamentals that matter more as the cost of capital stays elevated.
The second (we argue) is becoming more important: transition performance and resilience.
The issuer that has invested in future capex that targets decarbonisation, operational and supply chain efficiency, and physical-risk adaptation is the one most likely to have a durable cash-flow base, lower regulatory exposure, and broader financing access as the cycle turns.
Together, these two factors redraw the line between credit that merely survives higher rates and credit that compounds through them.
The takeaway
The opportunity in fixed income is shifting. The more challenging, but better value is in identifying the issuers whose business models and balance sheets can withstand not only higher real rates and refinancing pressure, but also transition and physical climate risks.
Transition and resilience can be the differentiator here, but used as credit risk tools rather than just an issuer’s marketing campaign. That's where active portfolio management will matter most in the next phase of this cycle.
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[i] “Global bond sell-off pushes 10-year Treasury yield to highest since 2002”, Financial Times, 1 Oct 2026.
[ii] “Vanguard warns France is ‘degrading credit’ as borrowing costs surge”, Financial Times, 30 Sep 2026.
[iii] Option adjusted spread of Bloomberg Corporate Investment Grade Index (LUACTRUU).
[iv] “A quantum of AI debt tests credit market capacity”, Guggenheim Investments, Third quarter 2026 corporate credit quarterly.
[v] Bloomberg US Aggregate BBB and A index.
