Global Markets Daily Credit When Higher Yields Become Less Supportive

Economics Research 13 October 2026 | 11:08AM BST

Global Markets Daily: Credit: When Higher Yields Become Less Supportive

n Credit spreads have historically provided some cushion when government yields Sara Grut | rise, particularly when higher rates reflect stronger growth expectations. That Goldman Sachs International

cushion has become less reliable in recent months. Since July, USD and EUR credit spreads have moved higher in tandem with government yields, creating a dual headwind for unhedged credit returns. n In this Global Markets Daily, we revisit the relationship between rates and credit spreads, focusing on why the correlation has shifted into more positive territory and what that means for credit investors. The spread/rates correlation is especially important for IG credit, where elevated all-in yields have been an important technical support for demand in recent years. In USD IG, credit spreads account for less than 15% of all-in yield today, versus an average of 45% between 2019 and 2021. But the support from higher all-in yields is less reliable when the increase in risk-free rates is accompanied by wider spreads and elevated rates volatility. n We think the recent spread moves reflect a combination of higher oil prices, a rapid rise in government yields, and renewed fiscal concerns in Europe. While the spread/rates correlation should moderate if the pace of the rates sell-off slows, we do not expect a quick return to the reliably negative relationship that previously helped cushion credit returns. With spreads still tight and credit spread curves relatively flat, we favor carry with controlled duration exposure. Within credit, we retain a modest preference for USD over EUR, favor BBBs over AAs and As, and see better value in the belly of the curve than at the long end.

Credit: When Higher Yields Become Less Supportive

For credit investors, the relationship between government yields and credit spreads is an important determinant of total returns. Higher government yields are not necessarily adverse for credit when they reflect stronger growth expectations, as there should be a positive read-through for corporate profitability. Moreover, tighter spreads in such an environment could provide a partial offset to the negative duration impact. This was broadly the pattern through much of 2024 and 2025.

The recent price action has been different. Since July, USD and EUR government yields and credit spreads have moved higher in tandem rather than offsetting one another (Exhibit 1). The one- and six-month spread/rates correlations have also moved more firmly into positive territory in the USD market, after remaining largely

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs Global Markets Daily

negative since 2024 (Exhibit 2). In the EUR market, the correlation has turned negative again after several months in positive territory. We think this reflects broader signs of stress, which have pushed Bund yields lower.

Exhibit 1: Credit spreads and rates have moved higher in tandem since July bp USD IG spread vs. 10-year Treasury yield % bp EUR IG spread vs. 10-year Bund yield % 100 USD IG Spread (LHS) 5.6 110 EUR IG Spread (LHS) 3.8 US 10-year Treasury yield (RHS) German 10-year Bund yield (RHS)

70 3.8 70 2.6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Source: Bloomberg, Goldman Sachs Global Investment Research

Exhibit 2: The spread/rates correlation in the USD market has moved back into positive territory Corr. USD IG / 10-year Treasury yield Corr. EUR IG / 10-year Bund yield 1-month rolling correlation since 2026 1-month rolling correlation since 2026 1.0 1.0

-1.0 -1.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Jan Feb Mar Apr May Jun Jul Aug Sep Oct Corr. USD IG / 10-year Treasury yield Corr. EUR IG / 10-year Bund yield 6-month rolling correlation since 2021 6-month rolling correlation since 2021 0.8 1.0

Source: Bloomberg, Goldman Sachs Global Investment Research

The correlation shift matters because it reduces the resilience of unhedged credit…