Voya Credit Income Fund Quarterly Commentary - 2Q25

Class I shares of the Fund outperformed the benchmark on a NAV basis for the quarter. Across sectors, the Fund benefited from security selection within energy, primarily due to its preference for midstream over exploration and production (E&P), as well as within retail and industrials, where select outperforming credit contributed. In contrast, the Fund was negatively impacted by security selection within healthcare and pharma as well as building materials. Asset allocation impact was modestly negative given the Fund’s slight overweight to the loan market during the quarter.

The second quarter of 2025 opened with a surge in global trade tensions as the U.S. implemented sweeping tariffs on a broad range of trading partners. The move branded “Liberation Day,” caught markets off guard with tariff rates significantly higher than expected. Markets reacted swiftly and negatively: equities dropped into correction territory, credit spreads widened sharply, and U.S. Treasuries, which had been rallying on expectations of slower growth, sold off as investor sentiment toward U.S. assets deteriorated. Just days later, the U.S. administration announced a temporary reprieve, significantly reducing tariff rates to allow for negotiations. This reprieve, set to expire on July 9, 2025, helped stabilize markets. Although uncertainty remained, the easing of trade tensions allowed risk assets to recover gradually through the remainder of the quarter. Economic data released during the quarter painted a mixed picture, with 1Q25 gross domestic product (GDP) coming in at –0.5%, largely driven by the surge in imports, while the labor market remained resilient with solid nonfarm payrolls reports. Inflation continued its gradual descent but remained above the U.S. Federal Reserve’s 2% target. Against this backdrop, the Fed held interest rates steady throughout the quarter. 

The backdrop was volatile for leveraged credit, but firmed as the quarter went on. High yield (HY) bond spreads tightened by 57 basis points (bp) during the quarter to an option-adjusted spread (OAS) of 290 bp. After widening to 453 bp in April post-the Liberation Day tariff sell-off, spreads quickly rebounded and ultimately finished the quarter at their tightest level since late February. Similarly, the weighted average bid price of the loan market finished the quarter 76 bp higher at 97.07 despite falling below 96 in April at the peak of the volatility. Both segments produced strong total returns for the period. The Bloomberg U.S. High Yield 2% Issuer Constrained Index returned 3.53%, benefiting from the rally in Treasury yields, while the Morningstar LSTA US Leveraged Loan Index lagged, but still produced solid total returns at 2.32%. Looking at credit quality, the lower-rated parts of the HY market outperformed, while B rated loans were the standout performers within the loan market. BB, B, and CCC rated bonds posted returns of 3.44%, 3.62%, and 4.01%, respectively, while BB, B, and CCC rated loans returned 2.13%, 2.46%, and 2.31%, respectively. The new-issue market was more subdued, as volatility constrained new-issue supply. On the demand side, investor flows into leveraged credit were more mixed, as collateralized loan obligations (CLO) issuance was strong, but retail flows were negative following sizable outflows in April.

The macro outlook has improved for now, but we expect the ongoing policy uncertainty to continue to weigh on business and consumer spending and investment over the coming months. Corporate balance sheets and margins enter this environment in a good position, and an eventual shift in focus to more growth-friendly policies of tax cuts and deregulation should support growth, but neither businesses nor consumers are likely to respond with the usual level of spending, hiring and investment until the rules of the game are more clearly defined. The technical environment remains largely supportive in leveraged credit, as demand is expected to remain elevated given still attractive all-in yields. We expect spread volatility to continue until policy headlines and equity market volatility meaningfully subside. In addition, there remains a bifurcation between defensive names coveted by investors and businesses that are more at risk to further tariff and other geopolitical uncertainty. 

In terms of asset allocation, we remain slightly overweight to loans, which continue to have a carry advantage over HY. By rating, we maintain a single-B average credit profile and remain focused on name-specific risk given the increased bifurcation in performance among borrowers. As macro and policy uncertainties remain top of mind, our overall sector positioning remains defensive. To that end, we continue to favor defensive sectors such as healthcare and pharma and remain underweight in autos where tariff risks remain high and have become more selective in retail, favoring businesses that have manageable exposures to tariffs. Within cyclicals, we remain cautious with the view of global growth weakening.

Companies mentioned in this report—percentage of Fund investments, as of 06/30/25: N/A.