November 2025 review and outlook
Market environment
US corporate spreads widened by 2bp to 80bp option adjusted spread (OAS), delivering total returns of 0.65% and excess returns of -0.02%. The index yield declined 6bp to 4.76%. Tobacco, pharmaceuticals, and wirelines led sector performance, while chemicals, life insurance, and metals and mining lagged. “A”-rated bonds widened 1bp and “BBB”-rated bonds widened 3bp. Credit curves flattened slightly as intermediate maturities widened 2bp and longer-dated spreads widened 1bp.
European investment-grade spreads widened 4bp to 81bp OAS, generating total returns of -0.24% and excess returns of -0.16%. Autos, other financial, and life insurance outperformed; pharmaceuticals, diversified manufacturing, and wirelines underperformed.
High-yield spreads tightened 12bp to 269bp OAS, with total returns of 0.58%. Higher-quality “BB”-rated bonds again led performance, returning 0.66%, versus “CCC”-rated bonds at -0.19%. The high-yield index yield declined 21bp to 6.57%, its lowest level since April 2022. Fallen angels totaled $2bn, defaults reached $1.7bn, while rising stars amounted to $908m.
The US government shutdown ended after 43 days when a handful of Democrat members joined Republicans to break the deadlock. There was no Fed rate-setting meeting, leaving the Fed funds rate unchanged at 3.75% to 4%. Economic data and forward-looking indicators remained soft: the ISM Manufacturing PMI fell to 48.7, reversing earlier expectations for improvement. New orders ticked up slightly but stayed below 50, a level breached only once since January. Conversely, the ISM Services PMI rose to 52.4, beating expectations. The shutdown ending allowed release of delayed employment data: September non-farm payrolls grew by 119,000 jobs, ahead of forecasts. The October report was canceled, with the next release due in early December. Despite the strongest job growth in five months, labor force expansion pushed unemployment to 4.4%, a four-year high. October CPI data was not released; September headline and core CPI were both 3.0%. Consumer sentiment, per the University of Michigan survey, fell to 51.0 in November, the lowest since mid-2022. The Current Economic Conditions Index dropped sharply to 51.1, the lowest since records began in 1951, compared to a historical average of 94.5, the highest seen the pre-pandemic era.
Outlook
We see mixed drivers for US growth. Easing by the Fed, expansionary fiscal policy under the One Big Beautiful Bill, and continued AI-related infrastructure investment should support activity. Offsetting these are tariff impacts – yet to fully appear in data – and weakening labor markets, likely limiting growth to around the long-term trend. With few forward indicators (e.g. PMIs) showing clear improvement, we maintain a subdued outlook, projecting ~2% GDP growth in 2026. We believe inflation risks persist but should trend toward target, ending 2026 just below 3%. We expect the Fed to cut rates to a terminal level of 3.25% within 12 months. 10-year Treasury yields should settle near 4%, and 30-year yields around 4.70% in a year.
Technicals
November investment-grade issuance totaled $128.7bn, exceeding expectations for a second month. Elevated supply improved new issue concessions. December issuance is projected at $40bn, typically the year’s lightest. High-yield issuance reached $30.5bn, up 34% y/y. investment-grade inflows remained strong at $27.8bn. Treasury yields declined in the front and intermediate part of the curve: 5-yr -9bp to 3.60%, 10-yr -6bp to 4.02%, while 30-yr rose 1bp to 4.66%.
Fundamentals
Quarterly earnings growth surged 15%, with 82% of companies beating expectations. Investment-grade leverage is stable; interest coverage improved with lower rates, and EBITDA margins hit record highs. Liquidity remains ample, supported by strong free cash flow and issuance. Rising M&A may modestly pressure credit metrics into 2026, though equity-heavy deal structures imply limited new debt.
Valuations
Investment-grade spreads widened over the past two months to a recent high of 85bp OAS, driven by elevated issuance. Spreads have traded in a narrow range since July. With yields near 5%, investment-grade offers an attractive long-term entry point, supporting positive flows. Valuations remain tight, but muted selling on negative news prompted a modest tactical upgrade. Historically, US credit performed well during rate-cutting cycles, though current spreads remain compressed.
Risks
- Weaker employment data impacting the consumer
- Geopolitical tensions
- Tariff-related impacts on growth and inflation
- Rising debt-funded M&A and shareholder distribution