Four forces shaping credit markets

Damir Bettini Haran Karunakaran

26 June 2026

Global credit markets are entering a more complex and uncertain phase, despite broadly resilient headline fundamentals. While growth remains positive, it is increasingly narrow and uneven, and investors should prepare for higher volatility and greater dispersion in returns across issuers and sectors.

We have identified four key forces shaping credit markets in the near term: energy and geopolitics, fragile global growth, artificial intelligence (AI), and rate volatility driven by central bank divergence.

The most immediate driver is energy and geopolitics, particularly developments in the Middle East. Although recent progress in US–Iran relations has reduced immediate tensions, risks remain elevated and supply disruptions could persist. Markets are likely to embed a continued risk premium in oil prices, with outcomes highly sensitive to geopolitical developments.

A sustained resolution could ease inflation pressures and support spreads, while renewed escalation could widen spreads and create regional divergences, with Europe more exposed than the US or China.

Credit spreads have remained relatively stable despite rising oil prices

Data as at 15 May 2026. Source: Bloomberg

Oil price represented by ICE Brent Crude front-month futures; Global IG Corporate represented by the Bloomberg Global Aggregate Index.

The second force is fragile and uneven global growth. While headline indicators appear robust, underlying weaknesses are becoming more evident. In the US, growth is heavily reliant on AI-related investment, while consumer strength is increasingly concentrated among higher-income households. This concentration creates vulnerability, as any slowdown in key drivers — such as AI spending — could materially weaken growth.

Third, AI is reshaping credit markets, both structurally and cyclically. In the near term, the significant scale of AI-related capex is driving a surge in corporate bond issuance, which could act as a technical headwind for spreads. However, over the medium term, AI presents a compelling investment opportunity, as many issuers are investment-grade companies with strong balance sheets. The technology is also expected to create clear winners and losers across sectors, increasing the importance of issuer selection.

Finally, rate volatility and central bank divergence add another layer of uncertainty. Conflicting forces — including inflation pressures, slowing growth, and AI-driven investment — make policy paths difficult to predict, leading to fluctuating rate expectations. Bond market outcomes will depend heavily on rate direction, although current yield levels provide a cushion against adverse moves.

Overall, with credit spreads near historically tight levels and limited margin for error, active, selective investment approaches are critical. Opportunities remain attractive at issuer level, but avoiding mispriced risk is equally important in a market that is becoming more differentiated and less forgiving.

Damir Bettini is a fixed income portfolio manager at Capital Group. He has 34 years of investment industry experience and has been with Capital Group for 18 years. He holds a bachelor’s degree in aeronautical engineering from Queen Mary and Westfield College, University of London. Damir is based in London.

Haran Karunakaran is a fixed income investment director at Capital Group. He has 21 years of industry experience and has been with Capital Group for five years. He holds an MBA from London Business School and a bachelor's degree in commerce, majoring in finance and economics, from University of Sydney. He also holds the Chartered Financial Analyst® designation. Haran is based in Sydney.