Credit outlook: Beauty in the AI of the bondholder?

This last year will generally be remembered as a kind but chaotic one for investors. Major equity markets have delivered double-digit gains, credit markets are enjoying positive excess returns and gold bugs have been handsomely rewarded. Holders of long-dated European government bonds, the US dollar, oil longs and, more recently, crypto bulls might feel a little differently.

Financial markets have seemingly been nervous about ‘something’ for the entirety of 2025. But prior concerns such as tariffs, unsustainable deficits and geopolitics have somewhat faded into the background for now, only to be replaced with new ones: the artificial intelligence (AI) boom and private credit ‘cockroaches’. We suspect these topics are likely to dominate conversation for the foreseeable future. We believe the rest should be considered dormant and not extinct.

Given tight starting valuations, the resilience of credit this year has been particularly impressive in the face of so much noise. One supportive factor has clearly been widescale global monetary policy easing over the past twelve months. This will continue, but the path forward for the US Federal Reserve (Fed) especially will be a key focus for markets.