Credit Focus

US growth at its softest since 1Q25: US economic sentiment has softened recently. That said, Bloomberg consensus for US growth in 2026 remains at 2.1%. We expect US growth to remain stable over the course of the year supported by a positive liquidity environment and corporate and government spending rather than consumer demand. The growth environment could be characterised as mid-cycle, in our view, with stable liquidity, credit and labour market conditions.

The BBVA FCI is falling after a spike in 4Q25: the BBVA Financial Conditions Index (FCI) index has dropped from its recent high reached in 4Q25 due to lower macro volatility and tighter credit spreads (a lower FCI suggests easier financial conditions and higher risk appetite). The credit component of the FCI index has become the main driver of the currently loose financial conditions in the markets. BBVA Credit QIS strategies have historically been the best performing risk premia strategy over the last 15 years when the FCI index has been at similar levels to now.

Trade of the month – Credit Trend: the BBVA credit strategy team continues to see all-in yield as attractive in the credit markets. We expect this to drive inflows into credit markets and, as a result, BBVA credit QIS strategies looks attractive in 2026. As macro volatility subsides in a stable growth and inflation environment, we could seen investors increasing their allocation in carry markets. Furthermore, we have seen a sharp decline in credit volatility over the last three months (as evidenced by the volatility of the US High Yield ETF: HYG). This decline in volatility has meant that the Sharpe ratios of our credit strategies have looked extremely attractive over the last three months. While past performance is not indicative of future results, the healthy balance sheet in the corporate sector combined with abundant liquidity could mean that the low volatility regime is here to stay, auguring well for the continued outperformance of the Sharpe ratio of such trades.

FX LatAm carry – we highlighted our preference for the BBVA FX Carry strategy in multiple publications last year. We still believe that the strong momentum of carry strategies and the FX carry strategy in particular should continue this year. The popularity of EM has increased in sell side outlooks for 2026, helped by the continued expectation that US assets will underperform the RoW. We see the current environment of strong flow momentum into emerging markets combined with loose financial conditions and a stable global growth outlook as providing extremely supportive conditions for this trade.