Q4 2026 Corporate Bond Market Outlook

Corporate Bond Market Outlook Q4 2026 AUTHOR SUMMARY • The Bloomberg (BBG) Investment Grade (IG) Corporate Index Nick Elfner (the Index) generated a negative total return of 3.94 percent, as Co-Head of Research interest rates rose sharply in the third quarter of 2026 (3Q26).1 • IG spreads widened 6 basis points (bps), driving a negative excess return of 14bps.2 At +80bps on the Index, we view spreads as fully valued, while IG yields at six percent are well above average.3 • Credit issuance totaled $561 billion in the third quarter, up 30 percent year-over-year (Y/Y). Domestic taxable bond fund flows, and foreign investor demand remained solid.4,5 • Net leverage eased fractionally to 2.8 times, with last twelve months EBITDA growth just shy of 20 percent Y/Y and record high margins supporting stable-to-improving credit fundamentals.6

1. The BBG U.S. IG Corporate Bond Index is an unmanaged market-value-weighted index of IG corporate fixed-rate debt issues with maturities of one year or more. You cannot invest directly in an index. 2. The BBG U.S. IG Corporate Bond Index, Option-Adjusted Spread (OAS) vs Treasury Curve, Breckinridge, 9/30/26. 3. Ibid. 4. Investment Company Institute (ICI), Weekly Combined Estimated ETF and Long-Term Taxable Bond Flows, 9/30/26. 5. Treasury International Capital (TIC), TIC Data for July 2026, Net Corporate Bond Cross-Border Flows, 9/18/26. 6. Barclays FICC Research, U.S. Investment Grade Credit Metrics – Q2 26 Update: Stable Metrics, 9/22/26.

Corporate Bond Market Outlook Q4 2026 CORPORATE | OCTOBER 8, 2026 | 2

Investment Review & Outlook Credit Spreads Leaked Wider, but It Was Rates That Pressured Returns The main story during the third quarter was not credit or spreads but rather a sharp repricing of interest rates pushing yields on the Index over six-percent. Before rates began to move to center stage in September, the credit market’s focus was mostly on new corporate bond supply, with a record August pushing the summer tally over $500 billion, up 30 percent Y/Y, in what is typically a slower period. Hyperscalers7 continued to increase their weightings in the Index, with two issuers now among the top 15 by market value and two among the top eight. While U.S. banks remain six of the largest ten issuers, if hyperscalers continue to issue bonds at this pace they may challenge U.S. banks for top Index spots within a couple of years. While issuer and sector concentration is a challenge and causes hand-wringing, corporate bond investors have become accustomed to this with the Banking sector.8 Credit spreads widened 6bps in the third quarter after 14bps of tightening in the second quarter. Strong earnings and economic growth, favorable rating actions, and equity market gains supported credit spreads, while elevated supply and interest rate volatility9 were clear headwinds. Sector-wise, underperformance continued in Technology (+8bps), Retailers (+10bps), Media Entertainment (+10bps), and Cable Satellite (+24bps), where the hyperscaler issuers reside. With rising commodity prices, oil specifically, Energy (-3bps) and Basic Industry (-1bp) continued to outperform. As of 3Q26, credit spreads are back to the 7th percentile over a 20-year look-back, with full valuations necessitating careful selection. Despite a negative total return this quarter, well above average yields in the 93rd percentile are driving strong demand and fund flows. The Breckinridge Investment Committee’s base case macro outlook is for real gross domestic product (GDP) growth to return towards trendline levels. Strong AI-related capex and resilient consumer spending have pushed growth higher, though nominal wage growth is on a decelerating trend at around three percent. We expect one additional Federal Reserve (Fed) interest rate hike in 2026 and another in 1H2027. Geopolitical developments add uncertainty and are a downside risk to the outlook. Well above-average yields, solid investor demand, and stable-to-improving credit fundamentals are offset by tight spreads, debt-funded AI capex, and high supply, driving a modest overweight to the corporate sector with a defensive posture. A broad repricing of interest rates means that…