Published by WealthBriefing, this three-part series from BNY Investments examines the global credit market – its role in diversified portfolios, strategies for capturing yield without sacrificing quality and approaches to navigating volatility while uncovering alpha.
Together, these articles offer investors practical insights for building resilient, opportunity-driven portfolios in an evolving market landscape.
In today’s dynamic investment environment, discerning wealth managers seek strategies that combine resilience, income potential, and diversification. BNY Investments believes global credit offers a uniquely compelling proposition within the multi-asset landscape. With thousands of issuers spanning a broad spectrum of credit quality – the global credit universe provides both depth and diversity, alongside attractive yield opportunities relative to historical norms.
This report comprises three articles which aim to explore why a core allocation to global credit deserves your consideration.
The first examines the fundamental qualities that distinguish global credit from other asset classes. Next, we delve into the breadth and depth of the investable universe, highlighting the diversity and credit quality that underpin its strength. Finally, we share how our disciplined, globally integrated credit strategy – rooted in rigorous process, regional expertise, and proactive risk management – enables us to navigate market volatility and uncover value where others may see risk.
We hope these perspectives offer valuable insights to support your investment decisions and client conversations in the evolving UK market.
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At BNY Investments, we believe that global credit is endowed with a number of favourable qualities, compared with other financial asset classes. It includes thousands of issuers with good credit quality, diversity and depth in the investable universe, and yield with the potential for income streams relative to history. In our view, these features create a compelling case for considering a core global credit allocation. Let’s look at them in turn.
A global credit universe will typically consist of high-quality securities, across the investment grade spectrum, from the highest AAA rating, through to BBB-. The Bloomberg Global Agg Credit Index (the “Index”) is a common benchmark for global credit managers and, as of March 2025, contains more than 20,000 securities, from more than 2,600 issuers, demonstrating the breadth and depth potential opportunities within the market. Its geographical coverage ranges worldwide rather than being confined to single discrete markets. It consists of borrowers from around the developed and developing worlds and in a number of currencies, with the dollar being dominant.
The bulk of the global credit world is made up of issues from corporate borrowers, covering the breadth of the economic landscape. They range from industrial sectors to utilities and financials. Industrials include sectors such as automotives, pharmaceuticals, energy, telecoms, and technology, while financials capture sectors such as banks, insurers, and real estate investment trusts (REITs). Utilities are typically a smaller sector covering electricity and gas providers.
However, the credit universe is broader than the corporate universe as it also includes issues from a collective of government-related, or non-corporate, entities. In general, they have stronger average credit ratings than the corporate issues in the universe and come from four key sources.
Supranational entities, such as the European Investment Bank and International Bank for Reconstruction and Development, make up about a tenth of the Index and are mostly highly rated (AAA). They have maturities across a wide spectrum, having been out more than 30 years in some cases.
BNY Investments
Published: 3 July 2025
In the first article of this three-part series, the US-headquartered investment firm examines the credit universe – what it consists of, its place in portfolios, and its behaviour across time. It argues that global credit should be a core part of a portfolio.
The editors are pleased to share this material; the usual editorial disclaimers apply to views from outside contributors.
Two further categories are government agencies and local authorities, such as the Export Import Bank of Korea and the province of British Columbia in Canada. Last, it includes some sovereign issues by governments borrowing in a currency other than their own, with examples such as dollar bonds issued by Mexico, or euro issues from Poland, or Italy borrowing in sterling.
Yield levels create an appealing draw for inflows to the asset class
The level of yield available in the global credit market has varied greatly over the last 25 years. Today, they are at attractive levels relative to the last 15 years or so.
Figure 1: Yields on global credit at attractive levels1
In the 2000s, prior to the global financial crisis, the average yield on of the Index ranged between approximately 4 per cent and 6 per cent. 2 During that period credit spreads over government bond yields tightened to the narrowest they had been. Spreads remained tight for most of the period from 2004 to 2007, with the increase in the overall yield during that time stemming primarily from higher government bond yields.
The global financial crisis in 2008 to 2009 created a sharp spike higher in spreads, which took investment grade credit yields to new highs, briefly exceeding 7 per cent, despite underlying government bond yields falling at the time. The ensuing economic decline and the extensive economic and market support measures that governments and central banks implemented, brought about a rapid decline in spreads and with that, yields. Though spread levels remained volatile for much of the next decade, yields trended lower and lower. Yields fell below 2 per cent just prior to the Covid-19 pandemic, which may have brought the attractions of global credit into question, but even then, spread levels did not appear uncomfortably tight as the alternative, yields on government bonds and cash deposits were close to or in some cases, below zero.
Yield levels on credit rose sharply in 2021 and 2022 as inflation took hold and as central banks sought to combat rising prices by rapidly increasing official interest rates. In a short space of time, credit yields rose above 5 per cent for the first time in more than a decade.
Global credit is back in the spotlight – with yields above 5% for the first time in over a decade and spreads near fair value, the asset class offers a rare window for compelling returns without stretching for risk.
Spread levels have also risen in recent months, pushed higher by an increase in economic uncertainty to a point that is much closer to what we see is fair value.
Higher yields and spreads appeal in two important ways. First, higher yield levels can provide some form of protection, with higher ongoing income insulating investors who may be concerned about the possibility for future capital losses. Second, the higher yields are, the greater is the potential for them to decline and generate capital gains.
Markets are in a position where lower yields could come from two sources: either underlying government bond yields could decline, as may occur if inflation concerns continue to ease; or credit spreads could tighten, which may result if economic concerns dissipate.
Only recently, investors would likely have had to take on greater risk in high yield markets to have been able to achieve the levels of yield that investment grade markets currently offer. They have seen that as an attractive opportunity. Now that investment grade markets offer attractive yields alongside lower risk, we believe that global credit will be attractive for many investors.
Footnotes
1 Source: Insight and Bloomberg. As at 30 April 2025. Bloomberg Global Agg Credit Index yield to worst.
2 Source for all yield data: Insight and Bloomberg. As at 30 April 2025.
Disclaimer Investment managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
Important information
For professional clients only. This is a financial promotion. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
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Having the freedom to access worldwide credit markets offers ample opportunities for active managers to target diversified investment opportunities with an eye to achieving outperformance and building resilience over time. This strengthens the case for incorporating an active approach to global credit within an investor’s portfolio.
The broader opportunity set in a global mandate can offer greater resilience in a financial storm, when compared with a regional allocation.
Looking at the outcomes of various crises that have affected bond markets in the last 20 years, global managers have typically performed comparatively well in the wake of such crises, when compared with regions individually.
Figure 1: A global approach to credit has been more resilient when global crises hit1
BNY Investments
Published: 17 July 2025
In the second article of this three-part series, the US-headquartered investment firm examines the credit market, the ingredients for investor success and strategies for maintaining composure.
It addresses how to assemble and guide portfolios, including navigating market volatility.
Following the global financial crisis, the 2015-16 energy crisis during which oil prices fell substantially, and the 2020 Covid crisis, the median global manager generally achieved equivalent or better performance relative to their peers than did the median managers of regionally focused (US, euro and sterling) strategies. The exception was the 2022 gilt crisis, where a global approach was only bettered by sterling credit market specialist approaches.
Broadening access to other sectors and ways that can improve diversification and make the most of the market
Adopting an active approach to global credit, which extends flexibility to a manager so that they have the freedom to access markets and asset classes beyond a traditional global benchmark, can provide clear benefits. Investing in asset classes such as high yield, emerging markets, asset-backed securities, or loans, can open up extra options for garnering additional alpha for portfolios. It also enables a portfolio manager to spread the risk they are taking more widely, potentially allowing them to achieve a performance objective but with the risk taken being more diversified.
Enable active positioning to deliver outperformance
To BNY Investments, the potential benefits of active management are clear, but how might a global credit manager actually achieve these benefits? There are a number of different approaches for applying active strategies.
First, one can apply credit strategy, including managing portfolio beta. Active managers flex the credit risk in the portfolio relative to the benchmark index. That credit strategy decision may be influenced by where in the credit cycle the market is perceived to be, or what its valuation appears to be relative to history.
Second, credit asset allocation decisions may be driven by considering the macro relative value of related markets, such as positioning in one geographic market versus another. Others may include considering high yield over investment grade, emerging markets over developed markets, or identifying that synthetic markets (such as credit default swaps) appear to be priced differently from physical bonds.
Third, we believe great added value can be achieved through sector strategy. Here, whole industry sectors can sometimes have valuations that do not reflect the current or future strength or weakness of their constituent companies. This is often due to the sector experiencing a slightly differentiated economic cycle than the broader market. Additionally, some industry sectors may become over-leveraged relative to others, making them less attractive to active managers. Importantly, unlike a passive approach, active managers have the flexibility to avoid investing in sectors where they believe the outlook is concerning.
Fourth, in our view, security selection can be a key driver of success in active credit management. Seeking to pick the winners, as we see them, in regions/sectors and avoiding the laggards by applying diligent and detailed fundamental credit analysis. That process aims to identify securities whose valuations do not accurately reflect the company’s current and future fundamental strength or weakness. When selecting an issuer’s securities, it is crucial to choose those with robust balance sheets and easy access to money markets. Additionally, issuers may need to be stress tested for risks such as litigation, new regulations, environmental or social factors, and potential mergers or acquisitions.
Global credit is back in the spotlight – with yields above 5% for the first time in over a decade and spreads near fair value, the asset class offers a rare window for compelling returns without stretching for risk.
Last, it may be possible to add value through duration and yield curve strategies, or through applying active currency views. Managers can strategically position their portfolios based on their outlook for market yields. If they anticipate a decline in yields, they might add longer-maturity issues, which are expected to benefit the most from such a scenario. More sophisticated strategies may involve targeting specific segments of the yield curve or varying investments across different maturities. A manager may also believe that a currency is unjustifiably undervalued and wish to apply some active risk through that channel.
We believe that taking an active approach can be a superior approach over the long term. It seeks to identify where there is excess value that can be captured, or where the expected returns are insufficient given the apparent risks.
We would maintain that the key to achieving consistent outperformance would be to focus on successfully applying credit strategy decisions sector/security selection, where having a well-resourced, experienced, and dedicated credit research team may be able to provide a competitive advantage.
Footnotes 1 Source: Bloomberg. As at 31 May 2025. Recovery is measured as the median manager relative performance in the six-month period ending in: GFC: June 2009, Eurozone Crisis: April 2012, Energy Crisis: August 2016, COVID: September 2020 and Gilt Crisis: April 2023.
Investment managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) SA (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
Important information
For professional clients only. This is a financial promotion. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
For further information visit www.bnymellonim.com Document ID: 2524000. EXP: 25 December 2025.
What’s the appeal of a global credit strategy?
We believe that investing in global credit can offer a number of attractive benefits to investors. It provides the chance to generate attractive yields from high-quality, global companies. Then there is an additional potential to deliver capital returns should yields decline, while adopting an active approach, as we do, may help to achieve enhanced resilience and improved diversification.
In our view, to achieve these consistently and reliably depends on a robust and transparent investment process. We believe our global credit strategy exhibits these characteristics.
High-quality investments selected through a rigorous approach
Our approach has an investment grade focus in which we seek to achieve outperformance that is primarily driven by credit decisions. We concentrate efforts on the best way of achieving overall exposure to credit markets and specific issuers where we see value.
By using the balanced investment platform that we’ve developed, which has an investment presence on both sides of the Atlantic, the generation of ideas can avoid undue geographical bias. We aim to identify and incorporate attractive relative or absolute value opportunities across the entire credit space. We seek to do this without compromising the overall quality of the portfolio.
We focus on adding value through credit decisions and believe that our investors can have confidence in what they may expect to see drive our performance. We don’t seek to add meaningful value through allocations to currency or duration risk. We implement our credit views across four layers.
Beta management: the directional risk we take on credit spreads, looking at the market’s position in the broad credit cycle, valuations relative to historical experience, and tactical considerations such as investor flows.
BNY Investments
Published: 8 August 2025
In the final article of this three-part series, the US-headquartered investment firm revisits the credit market and explores how to maximise portfolio performance.
The authors argue that elevated market volatility will persist – creating opportunities for investors.
Macro credit relative value: our asset allocation decisions, identifying preferences across regions/markets, including such considerations about high yield relative to investment grade, or developed markets versus emerging markets.
Sector strategy: taking positions across industry sectors based on fundamentals and relative value views.
Security selection: picking the winners we see in regions/sectors and avoiding the losers. Here we seek to call on the depth and breadth of experience across our team of credit analysts. Their detailed understanding of the fundamental financial standing of so many individual companies can help uncover and identify opportunities at issuer and security level.
The team looking after the fund consists of market and company veterans, consistently employing the long-standing investment process that we believe has been a key component of the strategy’s track record since it launched.
The regionally balanced organisational structure we have in place has credit, economic research and portfolio management teams in both the US and Europe. This is an approach that we believe enables us to stay close to worldwide news flow and market developments better for a global mandate than a single-location model allows. It also provides for increased interaction with our other specialist credit teams.
Since the inception of the global credit strategy, we believe that we have built a track record that can demonstrate the success of our approach. A key factor has been our focus on identifying credit deterioration early and avoiding issuers where there has subsequently been a sharp deterioration in credit quality.
It might seem counter-intuitive, but we welcome increased volatility in credit markets. The reason for that is we believe that volatility creates opportunities for security selection and relative value trades.
Typically, uncertainty that creates turbulence in markets makes pricing more volatile. Increased volatility means that there is less consensus among market participants about what the fair price of a credit (or indeed any asset) should be. That dispersion of opinion can allow for larger and more prolonged gaps between price and value and create more instances of perceived mispricing.
It increases the chances of attractively valued opportunities arising. Having a broadly and dedicated team of credit research analysts with extensive experience built through periods of both credit market turbulence and calm, may be a powerful tool in the quest for generating outperformance.
We believe that there is good reason to expect volatility to remain elevated.
Combined with the US administration’s shifting emphasis on trade and tariffs, the significant geopolitical tensions and existence of competing fiscal and monetary priorities in many areas can create an environment of elevated market uncertainty.
BNY Investments is a division of BNY, one of the world’s largest and most-trusted financial services groups. With a presence in 35 countries, BNY seeks to connect investors with opportunities across every major asset class.
Relentlessly investor-driven, our investment management model brings the best of both worlds to clients: a firm built on specialist expertise, powered by world-class distribution capability, and backed by the strength and commitment to financial stewardship of BNY.
That in turn can present attractive value opportunities available for capture, meaning that conditions remain ripe for the global credit strategy to continue delivering for our clients, through a diversified mix of high-conviction active positions.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
12 month returns (%)
Source: Insight as at 31 March 2025. Performance calculated as total return, income reinvested, gross of fees, in USD. Fees and charges apply and can have a material effect on the performance of your investment. Insight claims compliance with the Global Investment Performance Standards (GIPS). A GIPS compliant presentation is available upon request via your BNY Investments EMEA contact.
Disclaimer
Past performance is not a guide to future performance. The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
Important information
For Professional Clients only. This is a financial promotion. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
For further information visit www.bnymellonim.com Document ID 2540000. EXP: 25 December 2025