Lack of dispersion supports ‘up-in-quality’ bias in credit

Credit spreads in European investment-grade markets may still be offering yields above their historic norms, but the reward for taking on extra risk—spread premia—has noticeably shrunk. This narrowing of risk compensation has profound implications for investors. When dispersion in spreads declines, the gap between the safest and riskiest credits tightens, making it harder to justify venturing into higher-beta investments. Simply chasing yield could mean overlooking growing risks. As Muzinich highlights in this article, while credit still offers attractive spreads and yields, investors should...