In Europe, the macro picture has shown relative improvement. Economic data has surprised to the upside, and the European Central Bank has already begun its easing cycle. This divergence in policy has supported flows into European credit markets, where investors are increasingly viewing the region as a more stable alternative to the U.S.

Despite the uncertain backdrop, risk assets have rallied since the April sell off. Equity markets have largely looked through geopolitical shocks and policy risks, while credit spreads have compressed meaningfully. In high yield, both bonds and loans have retraced much of the widening seen earlier in the year, with spreads now sitting through pre- volatility levels. This tightening reflects strong investor demand and ample liquidity, but it also leaves less room for error. Looking ahead, while the market appears to be pricing in a soft landing and eventual rate cuts, the path forward is unlikely to be linear. For high yield investors, this calls for a measured approach—one that balances the appeal of elevated yields with the reality of tighter valuations and latent risks.

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