Monthly Bond Commentary - April 2026

In April credit spreads compressed from post-Iran invasion highs. Subordinated financials - a area we are overweight - was the top performing sector in our universe as spreads fell 20% in the month versus 12% and 15% for US IG and HY indices. Being deeply subordinated spreads started from high levels leading to a return of 3.7% in April alone compared with 0.45% for our investment grade benchmark.

Outperformance is a symptom of the asset class. Highly rated, systemically important banks are required to issue deeply subordinated debt by regulators. This combines long duration (relative to the HY universe) and high spreads (relative to the IG universe). During risk-on environment the combination powers the subordinated financials to equity like returns whilst assuming fixed income risk.

We should also highlight the recent underperformance of government bonds. Inflation concerns discussed last month along with weak economic growth and large fiscal deficits (potentially even growing deficits if Kier Starmer is ousted in the UK) is a bearish backdrop for government bonds. Sovereign curves bear steepened in April; yields (led by the long-end) shifted higher. By comparison, the recent strong performance of corporate earnings season along with high absolute yields has generated positive returns to credit versus negative for government bonds. Credit has also been boosted by a persistently strong primary market where hyperscalers are fuelling one of the largest debt binges in history; 2026 has been seen more primary volume than any year in history.