Voya Credit Income Fund Quarterly Commentary - 3Q26

Class I shares of the Fund returned quarter. –0.24% on a net asset value (NAV basis) in the third quarter. Negative returns were driven by the Fund’s exposure to high yield corporate bonds, which experienced wider spreads during the quarter and were weighed down by the sell off in rates. However, this was partially offset by the Fund’s allocations to floating rate assets, such as senior bank loans and collateralized loan obligations (CLOs). The Fund’s modestly long duration posture detracted as rates sold off sharply following a hawkish repricing of monetary policy expectations, ongoing geopolitical conflict, and strong growth. Security selection was a positive contributor driven by an underweight to building products loans and selection within legacy cable and satellite and media sectors.

For the third quarter of 2026, U.S. growth remained resilient, but sticky inflation, geopolitical energy shocks and the AI investment boom kept the Fed on a hawkish path and pushed yields toward multiyear highs. Payrolls expanded, unemployment stayed low and subdued wage growth limited wage-price-spiral risk, yet strong demand and massive AI-related spending on data centers, power infrastructure, semiconductors and related supply chains kept core inflation closer to 3% than the Fed’s 2% target. Chair Kevin Warsh reinforced that credibility would require sustained progress, and his hawkish Jackson Hole message drove markets to price —and the Fed to deliver — a September rate hike. Short-term yields rose with policy expectations, while resilient growth, persistent deficits and AI-related financing pressure lifted the long end. Spreads across corporate and securitized markets held firm for most of the quarter, but the rates sell off spilled into credit as spreads widened modestly by quarter end, leaving most fixed income sectors with negative total and excess returns. 

Performance in the below-investment grade credit markets was mixed in the third quarter and continued to reflect elevated dispersion and bifurcation across credit quality and individual sectors. High yield spreads widened by 40 basis points (bp) to 310 bp on an option adjusted spread (OAS) basis. Spread weakness was most pronounced among CCC rated issuers, primarily in legacy cable and satellite, while BB rated issuers and single-B rated issuers experienced only modest spread widening. With both rates and spreads moving higher, the Bloomberg High Yield 2% Issuer Cap Index returned 1.82% for the quarter. Within the loan market, the average loan price increased by 36 bp, as its floating rate structure helped mitigate the impact of the sell off in rates, allowing elevated carry and modest price appreciation to produce a solid return of 1.95% for the Morningstar LSTA US Leveraged Loan Index. B-rated loans were the outperformer across credit quality, which partially reflected a recovery in select software credits, while CCC-rated loans continued to materially lag higher quality cohorts. Issuance increased across both market, but stronger investor demand for loans helped keep the technical dynamic firmer during the quarter, as high yield bond fund saw increasing outflows late in the quarter.

The U.S. economy continues to expand near trend, but the sources of growth are becoming narrower. AI investment, fiscal support, and spending by higher-income households remain important drivers of activity, though each appears difficult to sustain indefinitely. While AI investment is unlikely to slow meaningfully in the next few years given strong hyperscaler balance sheets and committed projects, current growth rates are unlikely to persist forever. Fiscal deficits also remain a significant source of support, even as rising interest costs highlight the long-term challenges of the current trajectory. Consumer spending is increasingly bifurcated, with wealth effects supporting higher-income households while inflation, borrowing costs, and slower real income growth weigh on lower- and middle-income consumers. 

AI remains a key force shaping both the growth and inflation outlook. Continued investment in data centers, power infrastructure, semiconductors, and related technologies should support capital spending and corporate earnings. However, demand is increasingly running into constraints in electricity supply, grid capacity, materials, specialized labor, and advanced chips. These limitations also reduce the effectiveness of monetary policy, as higher interest rates can slow consumer and housing demand but cannot quickly expand physical capacity or resolve supply-side bottlenecks. 

Against this backdrop, the Fed's September rate hike appears more like a recalibration than the beginning of an aggressive tightening cycle. Economic growth remained stronger, unemployment lower, and inflation firmer than policymakers anticipated when they delivered insurance cuts a year earlier. Chair Kevin Warsh’s hawkish Jackson Hole speech reinforced the Fed’s commitment to returning inflation to its 2% target, making a partial reversal of prior accommodation likely. Our base case remains for two additional 25 basis points hikes, which would largely remove earlier easing rather than push policy into deeply restrictive territory.

Inflation should gradually moderate as shelter pressures ease, wage growth normalizes, and earlier tariff effects fade. However, a rapid return to the Fed’s 2% target appears unlikely. Geopolitical risks, supply disruptions, elevated energy prices, and AI-related demand could keep inflation closer to 3% for some time, while resilient spending among higher-income households adds persistence. Encouragingly, slower wage growth and relatively balanced labor market conditions reduce the risk of a wage-price spiral that would require a prolonged tightening cycle. As a result, the most likely outcome is a cautious, data-dependent Fed that pauses between policy moves while evaluating incoming inflation, employment, and financial market data. Reduced forward guidance should keep markets sensitive to economic releases and Fed communications. 

For fixed income investors, higher yields provide a more attractive starting point and a meaningful cushion against volatility. Yields near their highest levels since the global financial crisis continue to attract income-oriented buyers, even as tight spreads argue against broad risk taking. We favor measured duration exposure, as the market has priced in more tightening than what we think the Fed will ultimately deliver. Within credit, carry is likely to drive returns rather than further spread compression. We remain selective in corporate credit, favoring higher quality issuers, resilient balance sheets, and beneficiaries of infrastructure spending. Overall, the combination of attractive income, uneven growth, and elevated volatility supports a balanced approach built around quality, diversification and downside mitigation.

Companies mentioned in this report —percentage of Fund investments, as of 9/30/26: N/A.