Credit markets in early 2026 are being shaped by heavy macro influences, rising geopolitical risks, and a surge in new debt issuance, particularly from AI-focused technology companies. Scott Kimball of Loop Capital discusses tight credit valuations, heightened sensitivity to geopolitics and headlines tied to the oil sector, and growing volatility across high-yield, investment-grade, and emerging markets.
He shares his views on the new issuance calendars, volatility indicators, and AI capital structures. Kimball also points to shifting sentiment around US Treasuries, curve steepening risks, and the importance of using credit derivatives and cash bonds to hedge tail risks or capitalize on dislocations.
Interview
Josephine Gallagher – We’ve had a very macro-heavy start to the year in 2026. We’ve also had Davos last week. But what are some of the events and data points that are shaping your credit, investment, and trading decisions this upcoming week?
Scott Kimball – Well, as you referenced, 2026 has picked up right where 2025 left off. So a lot of the themes are the same, although some of the chess pieces on the board are getting moved around some. One thing that we think we have to continue to keep an eye on when it comes to credit markets, in particular, is new issuance. There was a lot of issuance out of the tech sector, particularly AI names, and that is certainly very topical in the week ahead. But it’s going to also be very topical throughout the year. Those are going to be some of the larger benchmark names in the index. So everything from correlation trades that are pairing it off against equities through thematic trading is going to be very focused on the debt markets. You also have the index trading and ETFs (exchange-traded funds), certainly buying entities and resampling as those bonds come to market. So, keeping an eye on the new issue calendar from a trading perspective and credit is going to be absolutely critical. In the backdrop, we also have to be very cognizant of the macro headlines. Another present that 2025 is also bestowed upon us in 2026. The subjects have changed somewhat. So for instance, you have some repeat subjects, Iran being back in focus on the geopolitical front, and what that means for oil names. So goes oil, so goes credit, particularly high-yield credit. So keeping an eye on the high yield ETFs, the high yield CDS (credit default swaps), the high yield cash bonds in the energy sector in particular, and also those in emerging markets, very topical and very important to watch. And then flipping here to our domestic marketplace, you know, we have a rising headline around things involving NATO and Greenland. Those were broad volatility trades in 2025 and the week ahead, there’s no reason to expect they won’t be a continuing trend of broad volatility trades as it relates to macro measures. So things like index level, CDS, the on the run, liquid corporate debt, even some parts of structured credit that are that are exposed heavily to the consumer, all of those have a bit of volatility contagion. When those things come back into focus, and you sort of see these tangential shifts higher in volatility services. So volatility traders within credit are going to have a very busy week as well.
Josephine Gallagher – And what are some of the trading tools that you use to navigate these kinds of markets, and, you know, capitalize on risk taking opportunities?
Scott Kimball – One of the things I love the most about being a credit investor, particularly as it relates to the US debt market is you have all kinds of instruments that you can use bidirectionally, depending on what your particular goal is. So one thing that we really focus on is tail risk hedges a lot in the credit markets, particularly when valuations get very snug, like they are right now. Really, by any measure, if you look at where valuations are in investment grade credit, look where valuations are in high yield. Look at where things are in emerging markets. Valuations relative to both credit quality and historical measures are extremely tight. So that raises the question of what happens if something goes wrong. So the instruments that we look at a lot for that are CDX (credit default swap index) and the investment grade market. You have equivalent in the high yield market, again, benchmark CDS type contracts that allow you to tail risk hedge in the event things move against you. But similarly, you can reshape those in a bidirectional way if you want to play offense. One thing we’ve done at Loop Capital, we raised a lot of capital. We have a lot of dry powder, and we kind of took advantage of some tight opportunities in late 2025 so we start looking to this year about where the opportunity is going to come from. So we’re looking to play offense. We can play offense with those instruments by taking the other side and capturing the upside in the event that markets rebound significantly, and furthermore, which we really like to do is buy into cash bonds. So it’s important to be looking at the marketplace and not just get so narrowly focused on derivatives. You have the opportunity to buy corporate debt, whether it’s investment grade or high yield or global credits at distressed prices when the market gets really upset, and sometimes that can have a better risk return payoff, plus you have the cash flow to go along with it.
Josephine Gallagher – And so we saw that Danish pension funds also offloaded their US Treasury holdings. Does this have the potential to have material impact on markets, or are you seeing a broader sentiment shift away from US assets?
Scott Kimball – The answer to that, in short, I’ll start with the last question is, yes. The sentiment around US Treasuries, both it’s the confluence of things, concerns about the budgetary process in the US and a growing amount of debt relative to the what seems to be the willingness of the markets to accept it. That’s been a theme that’s been long running. Specific to the week ahead in this issue of the Danish pension fund, to us, that’s more about broad sentiment about NATO members and a lot of our what we’ll call our financial allies. So the Danish pension fund, the numbers that came out were about 100 million euros or so from one of them that they wouldn’t be participating anymore. That’s certainly a big number. But I mean, we at Loop Capital buy that ourselves. So it’s not going to be immediately impactful, but we start spilling over and seeing the 100 billion dollar, the 200 billion dollar, the trillion dollar holders of debt that are aligned with that type of thinking, that has implications for the US curve and we’ve seen a steepening curve. You know, the curve was inverted not that long ago, and now we’re continuing to see the curve steepening. So the week ahead, watching the shape of the curve, we personally believe there’ll be a steepening bias. You can capitalize on that again, using those derivative instruments. If you don’t want to use the cash bonds, but also inflation linked securities and inflation swaps are another tool you can use to express that view. If you think steepening curves and rising inflation expectations are going to be a double whammy on US benchmark rates.
Josephine Gallagher – There are a lot of other trends work monitoring, such as the AI investment cycle, as well as the strengthening dollar. But tell me, what would you advise trading desk to be focusing on this coming week?
Scott Kimball – So what we’ve discovered is, if you just say AI, even if we’re putting on a marketing pieces, we put AI in the subject, you get more clicks and more hits. So whether you believe in the technology or not at this point doesn’t matter as much, because the market is certainly trading off of that. We’ve talked about that in the debt market significantly throughout 2025 it’s a big theme again in 2026. So I think you’re going to continue to see if AI remains topical. So looking at whether it’s the equities or it’s the debt, or the growing CDS (credit default swap) market for the debt, on those names. Focusing on the AI trade, looking at the earnings cycle, looking at the sentiment. But also looking at the cross pollination of the investments in the AI companies. Can tell you a lot about the nature of these capital structures and pricing the risk. So I’ll give you an example. You have company A invest in Company B for a project. Company B invest with company A for a project, and then they both co invest in something, a structure we’ll call Company C for a different project. So the web is getting a bit tangled. It almost looks a bit, I dare I say, like a CDO (collaterized debt obligation). For those of us that lived through that in the early 2000s.There’s a lot of cross pollination of capital, and then there’s leverage and debt being issued by all of those companies, A, B and C to fund those projects. So keeping an eye on the AI cap structures, keeping an eye on that earning cycle is critically important. I think another major theme that we have to just continue to deal with is when we see the market get in these places of complacency. If you see VIX and the equity side is declined. If you see the implied volatility on the move index in the credit markets is declining, getting complacent, rest assured, we are one headline away from a complete reversal of those surfaces and a steepening of those volatility term structures. So that’s an important thing that you have to be keeping an eye on. And complacency is the second thing I would highlight, being very narrowly focused on that because it’s never quite as comfortable as the market wants you to believe it is when you get towards the lower end of that spectrum.
Catch Trader TV shows each week:
To watch Trader TV This Week shows go to – Video
Or make sure to follow us on LinkedIn – Trader TV’s LinkedIn
Available as a podcast – Link
