Monthly Bond Commentary - October 2025

After a strong run for risk assets so far this year, we are beginning to see isolated pockets of stress, or as JP Morgan CEO Jamie Dimon termed it "cockroaches." The most newsworthy issue has been First Brands Group who recently filed for bankruptcy protection after its use of 'off-balance sheet finance' caused the company to collapse. First Brands in fact used the same type of off-balance sheet wizardry that led to the implosion of Greensill Capital and we hope it goes without saying that this type of secretive private debt is not something we have ever invested and do not intend to at any point in the future. It is our belief that Jamie Dimon's cockroaches are firmly contained to private credit markets which have boomed over recent years, leading to 'FOMO' for some and weaker lending standards as capital rushed into the sector. By contrast, public markets have maintained higher standards and index level quality is at its highest since September 2015 as judged by the share of bonds rated AAA-A in our benchmark.

Meanwhile, equity markets have been jittery as valuations hover near all time highs and hyperscalers promise trillions in capital expenditure over the coming decade setting up an environment reliant on fewer than 10 companies to generate returns. Looking to the historic record as a guide we see that at no point in at least 35 years has equity outperformed credit over an 5 year timescale whilst price-to-earnings ratios are this high. So, with high quality borrowers and record equity valuations we are strong advocates that a carefully curated bond portfolio is a necessity in the current market, particularly as interest rates look set to fall in the coming months. There can be no doubt that AI will reshape our economies, but we are in the early stages of the revolution and we don't yet know whether the leading equities are the Cisco's and Yahoo's of the equity boom or the Microsoft and Apple's, i.e. the dot-com losers or the ultimate winners.