One of the clearest trends in the credit market is how tight spreads are in historical terms. In the view of Daniel Ender, portfolio manager on Robeco’s credit team, saying that this translates into a phase of “market complacency” offers an overly simplistic view of what is happening in this asset class. In this interview, we spoke in depth with Ender about this and other trends in the credit market.
After the strong tightening of spreads in recent quarters, do you believe investment-grade credit still offers relative value, or are we already entering a more complacent phase?
I think it very much depends on how value is defined; it is quite subjective. Spreads are undoubtedly tight in historical terms, but labeling this as pure complacency is too simplistic. The key point is that the starting point for total returns remains attractive, which continues to support demand, especially from yield-focused investors. That said, if you look at spreads as compensation for risk, the picture is less convincing. We believe spreads offer a limited cushion against the range of risks that are building up in the system. So, it is not outright complacency, but rather a market supported by strong technical factors and demand for yield. From here, returns will need to come much more from issuer selection than from further broad spread compression.
What risks do you think corporate credit investors are currently underestimating?
I think the main risk is that, on the surface, everything appears to be fine, but underneath, more stress is building. High interest rates themselves are not the problem; companies have largely adapted to them. The issue is what happens when higher financing costs are combined with slowing growth and more pressure on certain business models. We are starting to see this in some market segments, especially in more leveraged companies and sectors facing disruption, such as certain areas of software. Refinancing is becoming more difficult, and at the same time, margins are under pressure. It is not a systemic problem at this stage, but it is something that could gradually spread. Markets tend to ignore it until it becomes more visible, and then the adjustment can be quite rapid.
In your case, how are you currently balancing carry and quality in the portfolio?
We are keeping the portfolio beta broadly neutral because spreads do not justify taking on more risk at this point. The focus is clearly on generating alpha through issuer selection rather than relying on beta. In practice, that means avoiding areas with limited transparency and growing stress, such as private credit proxies and BDCs; being selective in new issues where concessions are attractive; and favoring structures and sectors where compensation is structural rather than cyclical. This is not a “buy the dip” environment, but rather an environment where returns must be earned through selection.
We have seen strong resilience in corporate fundamentals. To what extent do you believe that strength can be maintained if growth continues to slow?
They have been very resilient so far, but we are starting to see early signs of pressure. Consumption is being supported by low savings levels, which is not sustainable, and the labor market is gradually weakening. At the same time, higher energy prices are pushing inflation upward and growth downward. So, we do not expect a sharp deterioration, but rather a gradual erosion of fundamentals if this situation continues.
From a sector perspective, where are you currently seeing the greatest opportunities, and conversely, where do you see the greatest risk of excessive spread compression?
We are positioning around the idea of HALO: Hard Assets, Low Obsolescence. These are sectors such as infrastructure, utilities, pipelines, or mining, where assets are tangible, difficult to replicate, and less exposed to disruption. On the other hand, we see clear risks in areas exposed to artificial intelligence disruption, particularly software, and in segments heavily dependent on private credit financing. What is interesting is that, beneath the surface, dispersion is already increasing, even though overall spreads still appear tight.
Have we already forgotten about ESG? What role is ESG integration playing in credit portfolio construction?
It remains a central part of how we assess credit risk; it has not been sidelined at all. We continue integrating ESG analysis into every issuer we cover as part of our fundamental credit work, including our internal scoring frameworks and credit committee discussions. So, it is not a separate additional layer; it is embedded in how we form our investment views. More broadly, we do not see returns and sustainability as mutually exclusive. Recent geopolitical developments have brought it back to the center of the agenda, especially in Europe, which is favorable for parts of the renewables and infrastructure space. So, if anything, ESG is evolving rather than disappearing: it is becoming increasingly linked to resilience, security of supply, and long-term credit quality.
Looking ahead to the next 12 months, what do you believe will be the main catalyst that could significantly change credit market behavior?
The main catalyst is the interaction between growth and inflation. The current energy shock is a good example of that dynamic: it is inflationary, but at the same time it weighs on growth, creating a difficult backdrop for credit. There are several catalysts that could alter that balance. A more pronounced slowdown in growth, for example through weaker employment data, including possible second-round effects stemming from artificial intelligence disruption, would be one. A prolonged conflict in the Middle East leading to structurally higher energy prices and potentially forcing a shift in central bank policy would be another. Private credit is part of the risk landscape, but we do not view it as systemic. The more relevant point is that negative headlines coming from that segment could affect market sentiment and trigger episodes of volatility in public markets. So, although the base case remains supported by solid technical factors, the main risk is that the macroeconomic environment turns out to be less benign than what the market is currently pricing in.
