Investment-grade bonds get green light from investors Investment-grade bonds get green light from investors http://www.federatedinvestors.com/texPool/static/images/texpool/texpool-logo-amp.png http://www.federatedinvestors.com/texPool/daf\images\insights\article\traffic-light-green-building-small.jpg January 26 2026 January 28 2026

Investment-grade bonds get green light from investors

With attractive yields and solid credit, demand for corporate bonds continues to be strong.
Published January 28 2026

Despite all the noise in 2025, the Bloomberg Credit index posted a solid total return of 7.83% and credit spreads tightened slightly. What accounts for this surprising gain, and what should we expect as 2026 progresses?

Earnings and yield were two key factors that drove the investment-grade market higher. Revenues and earnings expectations rose throughout 2025, with full-year gains expected to exceed 7%. Though US Treasury yields fell during the first half of 2025 on recession fears and expectations of Federal Reserve rate cuts, they stabilized then rose slightly toward year-end as economic growth persisted. The yield on the Credit index ended the year about 4.80%, which looks increasingly attractive as fed funds and front-end yields have fallen to around 3.60%.

Demand for corporate bonds continues to be strong. In 2025, more than $340 billion flowed into high-grade corporate bonds — since 2020 that is second only to 2024’s $378 billion. Meeting this demand was a similarly robust new bond issuance reaching $1.8 trillion — also the second-highest since 2020. While that seems like a lot, and it truly is, the net amount of new bonds (new issuance minus redemption of maturing bonds) was $548 billion — a more manageable amount, placing it only eighth out of the last 10 years.

Also crucial is that the investment-grade credit market has grown and changed with the times. Since 2015, the Credit index is over 50% larger, now nearly $8.5 trillion, and the number of issues has risen nearly 50%, while the number of issuers has grown more than 10%. Throughout this time, the average credit quality of the index has remained about the same, at low A: the portion of AAA, AA and BBB have all fallen, while A-rated credit has increased from 35% to over 41%. The structure of the market has also changed over the last five years. The biggest industry gainers have been banking, utility, and technology, while integrated energy, wirelines, cable, and food & beverage have all shrunk.

Two industries that have recently grown the most reflect a key focus for 2026: retailers and technology. With the rise of artificial intelligence, companies have already spent — and will surely spend even more — capital to build that capability. The markets will closely watch the largest issuers in these industries to assess whether that turns into profitability.

In the meantime, corporate credit remains in a very good place. Revenue and cashflow growth are accelerating, profit margins are near a peak, and companies have managed their balance sheets well during a period of uncertainty. Capital spending increased sharply in the third quarter, led by the technology sector, but this is mitigated by tax law changes favoring such spending. Leverage has stabilized at 3.1x, and interest coverage declined slightly, to 9.6x, near pre-Covid levels.

Adding all this up, we believe the investment-grade corporate bond market is well positioned for 2026. There are challenges, from government policies to geopolitical curveballs to AI-related growth, but companies enter the year in good shape.

Tags Fixed Income . Markets/Economy . Interest Rates .
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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

Bloomberg Credit Bond Index: Composed of all publicly issued, fixed-rate, nonconvertible, investment-grade corporate debt. Issues are rated at least Baa by Moody's Investors Service or BBB by Standard & Poor's, if unrated by Moody's. Collateralized Mortgage Obligations (CMOs) are not included. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are unmanaged and investments cannot be made in an index.

Investment-grade securities are securities that are rated at least "BBB" or unrated securities of a comparable quality.

The spread is the difference between the yield of a security versus the yield of a United States Treasury security with a comparable average life.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Bond credit ratings measure the risk that a security will default. Credit ratings of A or better are considered to be high credit quality; credit ratings of BBB are good credit quality and the lowest category of investment grade; credit ratings of BB and below are lower-rated securities; and credit ratings of CCC or below have high default risk.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results. 

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