Euro credit is often treated as the quiet corner of institutional portfolios – stable, low maintenance, and easy to overlook. But that assumption is under pressure. Structural biases and shifting market dynamics are making passive exposure harder to justify.

The illusion of stability:
Fixed income indices are typically seen as neutral. In reality they carry structural biases. The most indebted issuers dominate index weightings, which can leave passive investors overexposed to leverage risk. Unlike equity benchmarks, credit indices rebalance monthly to reflect new issuance and rating changes. This churn creates inefficiencies that active managers can try to exploit, while passive strategies must accept them.

These issues have always existed, but today’s market dynamics make them harder to ignore.