Rates Are Rising Again: Where Credit Still Offers Value

The Fed raised rates by 25 basis points on 16 September 2026, its first hike in three years, to 3.75%–4.00%. At the October meeting it held, but two of the twelve voters wanted another hike. That is the headline. The real story sits further out the curve, where the 10-year Treasury briefly topped 5% and nothing the Fed did explains why.

Here is what matters for anyone who owns credit: the rise in rates has two different causes at two different ends of the curve, and one is far easier to forecast than the other. Short-dated credit lets you collect the higher yield without having to forecast the hard one.

This post draws on a recent Oaktree Capital podcast, "The Insight: Conversations – Rates", where Wayne Dahl, co-portfolio manager of Oaktree's Global Credit strategy, explains the move. I checked its headline claims against current data and added my own arithmetic. Where a view is Dahl's, I say so. The plan:

• Why yields rose: two stories, not one
• How higher rates reshaped the credit opportunity set
• Where the value is, and what the carry math says
• What could make all of this wrong

Why Rates Rose: Two Stories, Not One

Start with policy. Dahl says expectations for the Fed's rate at the end of 2027 swung from as low as 3% to near 5% this year. Inflation expectations drove it. The bond market adds a twist: the front and back ends moved for different reasons. Table 1 splits them.

Table 1: Two ends of the curve, two different stories

Source: Oaktree, "The Insight: Conversations – Rates" (Wayne Dahl); Upstox (16 Sep 2026 FOMC decision). Dahl's decomposition into inflation expectations and real yields is his reading, not an official statistic.

The inflation leg

Dahl cites August PCE data with gas and energy up just under 30% year over year, while headline, core, goods and services all ran between 3% and 3.5%. Official numbers agree: headline PCE inflation held at 3.4% and core at 3.0%, with gasoline and other energy goods up 4.4% in August alone (Trading Economics).

Core at 3.0% is the number to sit with. Strip out food and energy and inflation is still a full point above the 2% target.

The long-end leg: AI wants your capital

The explanation I found most useful is competition for capital. Dahl cites projections of AI-related capital spending above $5 trillion by 2030, with over $2 trillion funded through investment-grade bonds. An investor choosing between a 30-year Treasury and a 30-year bond from a hyperscaler with a strong balance sheet now asks for extra pay to hold the government paper.

Spread $2 trillion evenly over five years and you get roughly $400 billion of new high-grade issuance a year (my simplification). That supply needs buyers, and buyers need a reason to leave Treasuries.

It isn't only a US story: Dahl points to Japan, Germany, Italy, the UK and, most recently, France, and the host noted several ECB hikes this year. When every major bond market reprices together, shared drivers (inflation, growth, capital spending) look more likely than any one country's fiscal problems. That inference is mine.

How Higher Rates Reshaped the Credit Opportunity Set

Higher rates did three things to credit. They lifted yields. They split borrowers by how they are financed. And they flattened the curve, so investors no longer need to take much rate risk to get paid.

Yields reset, spreads didn't

Dahl says high yield yields moved from roughly 7% to roughly 8%, with US and European high yield bonds carrying duration of about three years or less. That limits how much prices move when rates do.

Spreads tell a different story. Dahl calls them "a little bit on the tight end" and notes that BB, the best sub-investment-grade rating, is at a record share of the high yield market. Both are true at once: spreads are tight partly because the index is better than it used to be. Table 2 shows how the market prices each step down the quality ladder.

Table 2: Pricing each step down the quality ladder

Source: Convex (ICE BofA series: BAMLC0A0CM, BAMLH0A0HYM2, BAMLH0A3HYC). Multiples are the author's calculations. CCC dispersion comment: Dahl.

One more number the 8% headline hides. With high yield spreads at 331 bp, about 3.3 points of an 8% yield is compensation for credit risk and the other 4.7 or so is the Treasury rate (approximate, since the yield and spread dates differ). You are mostly being paid for rates, and short-dated rates are the part you can lock in without a view.

Who won and who is stressed

Floating-rate loans benefited this year: coupons rise with rates and prices barely react. But the same rise lifts the interest bill of the companies that issued them. Dahl compares it to 2022, when borrowers who had not fixed their balance sheets came under pressure. Table 3 maps the rest.

Table 3: Who won and who is stressed

Source: Oaktree, "The Insight: Conversations – Rates" (Wayne Dahl); IG spread from Table 2. These are one manager's views.

Earlier this year Europe offered wider spreads and strong fundamentals. Dahl says that edge has narrowed, and at today's spreads Europe carries somewhat more risk than the US.

The consumer: shielded, not immune

Most US household debt is fixed rate, so a hike doesn't hit existing borrowers at once. The pressure shows up in new borrowing, and in how much households are working to keep spending.

Table 4: Consumer signals

Source: Oaktree, "The Insight: Conversations – Rates" (Wayne Dahl). Dahl's reading of the data; the interpretation in the key insight is the author's.

Where to Find Value Today

Start with short duration

The curve has flattened, which means you can earn high yields without reaching far out. Dahl also argues that forecasting long-dated rates is harder than usual right now, given the US attempts to shift the path of longer-term rates that Howard Marks wrote about in a recent memo. Table 5 shows what the shorter maturity buys you in cushion.

Table 5: The cushion that short duration buys

Source: Yields and high yield duration from Dahl; Treasury duration is an approximation. Cushion = yield divided by duration, the author's rule of thumb. Ignores defaults, convexity and reinvestment.

Carry versus spread

Dahl frames the debate like this: if spreads widen another 100 bp, does my yield go to 9%? Probably. But a market that widens spreads is usually one where the economy is cracking, and then Treasury yields tend to fall, which offsets part of the damage. Table 6 puts rough numbers on it, using 8% carry and three years of duration.

Table 6: Carry versus spread, five scenarios

Source: Author's illustration. Return ≈ 8% carry minus (3 years × change in yield). Ignores defaults, convexity and reinvestment. Not a forecast.

Oaktree's head of liquid credit, David Rosenberg, puts it plainly: it's an income product, and you have to be invested to earn the income.

Then look beyond corporate credit

When core high yield looks tight, Dahl points to structured credit. Non-agency RMBS and newer-vintage CLOs offer spread without leaning on corporate default risk. The alternative to credit isn't zero either. The policy rate is 3.75%–4.00%, so the extra points in credit are what you're paid for credit and rate risk.

Table 7: Matching the worry to the tool

Source: Oaktree, "The Insight: Conversations – Rates" (Wayne Dahl); author's framework. General education, not personal advice.

What If I'm Wrong?

• The source sells credit. Oaktree is a credit manager, and every "where to find value" call here comes from one manager. I tested the carry math independently. I did not independently verify the RMBS or CLO fundamentals Dahl describes.
• Carry math ignores defaults. With spreads at 331 bp, the cushion against credit losses is thin, and Dahl himself calls spreads tight.
• Rates may not be finished. The October vote was 10–2 with both dissenters favoring a hike, and coverage afterward discussed a possible December move. Short duration limits the damage but doesn't remove it, and floating-rate borrowers feel every increase.
• The real-yield story is one reading. Splitting the long end into inflation expectations and real yields is a framework, not a fact. Term premium is not directly observed.
• It is a snapshot. Levels here are from October and early November 2026 and move daily.

Closing Thoughts

The market is arguing about whether the Fed is done. For credit, the better question is how much of that argument you need to win.

Short duration doesn't make you right about rates. It makes being wrong about rates affordable. What's left is credit selection, and passive exposure at 331 bp leaves little margin for error.

What would change my mind: a CCC spread that closes on high yield (the market has stopped asking for protection), or real wages turning clearly positive (the consumer cushion is back).

This article is educational and is not personalized financial advice. Investing involves risk of loss, and past performance does not predict future results. It summarizes and comments on a publicly available Oaktree Capital podcast; views attributed to Wayne Dahl are his, and the analysis beyond that is the author's own. Data as of 7 November 2026.