Portfolio analysis

Transition credit review: shock and recovery, YTD 2026

Written by Kamesh Korangi

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Credit markets have split into two distinct phases so far in 2026: a first-quarter oil shock and a recovery from the next. Our latest review examines climate and nature transition themes emerging across the global credit market and how they are feeding through to credit performance.

Using AFII's portfolio analytics system Co₂liseum’s transition scores to rank issuers, we find that performance has diverged by currency as much as by sector, and that the relationship between an issuer's transition readiness and spread performance does not hold uniformly across sectors.

Energy was the best performing sector in USD over the full year while EUR Energy offered lower volatility. USD Energy names on the back of record cashflow windfall tightened the most of any group (10bps). The Energy sector ranked low on transition.

Utilities behaved similarly, yet the sector has a far larger share of Green, Sustainability, Sustainability-Linked, Transition (GSST) issuance (51% of European IG, 13.7% of US IG), giving it a more transition-aligned profile at instrument level. 

In Chemicals, tighter spreads were associated with worse transition scores. In Autos the opposite held, with the highest-scoring issuers underperforming by 6bps. Regional disparities are emerging in Autos.  

On valuations, the greenium is not broad-based. Restated to a common five-year duration, green bonds trade wider than conventional instruments in seven of the ten sectors covered. The only clear greenium is in Utilities - 5.1bps tighter on 174 green issuers; green discounts are available in few sectors.

Technicals reinforce the picture. Sovereign volatility has run at roughly 2.6 times that of corporate spreads, credit curves have steepened in every USD BBB sector led by Technology, and US labelled issuance fell to 0.85% of USD corporate supply in H1 2026 from 1.99% a year earlier, even as total corporate supply reached USD1,328bn.

About the author

Kamesh Korangi

Kamesh Korangi

Managing Director, Head of Portfolio Strategy

Kamesh is an experienced credit derivatives and bond trader who leads the development of AFII’s portfolio analytics tool, Co₂liseum. He was previously a market maker and credit analyst at NatWest Markets, and holds a PhD in deep learning.

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