Voya Credit Income Fund Quarterly Commentary - 2Q26

Class I shares of the Fund underperformed the benchmark on a NAV basis in 2Q26 due to fund fees and expenses, as the Fund outperformed on a gross-of-fees basis. On Gross-of- fees, the outperformance was driven by asset allocation. The Fund benefited from off benchmark holdings within its mezzanine-rated collateralized loan obligations (CLOs), which delivered strong total returns given price appreciation and attractive carry. Security selection decisions were modestly negative, driven by negative contributions within media and entertainment, technology and healthcare, which were partially offset by benefits from selection within diversified manufacturing, consumer products and packaging. Across ratings, the fund’s relatively defensive posture and underweight to the CCC rating cohort provided a benefit during the quarter, as CCCs continued to underperform higher-rated categories.

The second quarter of 2026 was defined by resilient growth, persistent inflation, and a repricing of the policy outlook. A stronger-than-expected March employment report, followed by solid April and May data, reduced the urgency for rate cuts and led markets to consider whether the Fed’s next move could be a hike. Inflation remained stubborn, with energy disruptions, tariffs, and cyclical pressures offsetting moderation in shelter costs and reinforcing expectations that inflation may settle closer to 3% than the Fed’s 2% target. While the Iran conflict remained a source of volatility, easing oil prices and diplomatic developments helped markets move beyond peak uncertainty. artificial intelligence also remained a dominant capital-markets theme, driving substantial debt issuance to fund data centers, power infrastructure, semiconductors, and related initiatives, though strong borrower balance sheets limited broader credit concerns. Kevin Warsh’s arrival as Fed Chair added to the hawkish tone, while Treasury yields rose and credit spreads tightened as confidence in economic fundamental factors improved. 

Below-investment-grade credit markets firmed in the second quarter amid a healthier market backdrop. High yield spreads tightened 47 basis points (bp) to 270 bp, with most of the rally occurring in April and May before a modest widening in June. Loan prices also improved, with the average bid ending the quarter at 94.96, up 33 bp from the prior quarter. Supported by elevated starting yields and healthy spread compression, both markets delivered solid returns, as the Bloomberg High Yield 2% Issuer Cap Index returned 2.47%, while the Morningstar LSTA US Leveraged Loan Index gained 1.88%. Returns were positive across ratings cohorts in both markets and were led by B-rated issuers, although bifurcation and dispersion remained elevated, particularly across sectors, with software continuing to lag. High yield primary issuance rose to $101 billion—the highest level since 3Q 2025—driven largely by refinancing activity. Loan technical factors remained supportive but moderated as demand softened and supply exceeded demand by quarter-end. Excluding repricings, loan issuance totaled $104 billion, down slightly from $111 billion in the prior quarter.

he macro backdrop remains less supportive for spreads, as the ongoing conflict in Iran coupled with uncertainty over Fed policy continue to act as potential headwinds. The height of the conflict with Iran seems to have receded and oil prices have retreated off the highs but remain somewhat elevated. Lower oil suggests the impact on inflation may indeed be more transitory, but new Fed Chairman Warsh’s first press conference suggested his Fed would be focused on price stability, leading to the market pricing hikes in 2026 again. The AI capital expenditure super cycle continues to support top line growth, but the lower income U.S. consumer continues to be pressured by higher inflation and stagnant wage growth. In the short term, increased investment in AI is expected to drive inflation higher, as the immediate surge in capital expenditures and sourcing outpaces the eventual productivity improvements. Fundamental factors across both markets remain healthy alongside strong corporate earnings, but sector and issuer dispersion remains prominent. While net supply is expected to increase this year and potentially temper the exceptionally strong technical environment of the past two years, we expect technicals to still remain broadly supportive for leveraged credit markets. 

In terms of asset allocation, we remain overweight to loans, which continue to have a carry advantage over high yield, but closed the gap further in the second quarter as the yield difference normalizes over time. Our existing preference for loans has also been partially driven by idiosyncratic factors, as there’s been more compelling risk and return opportunities by moving up in the capital structure from bonds into loans for select issuers. By ratings, we are underweight to “right tail” of the market and maintain a single-B average credit profile, while staying focused on name-specific risk given the increased bifurcation in performance among borrowers. Across industries, the current macro backdrop warrants taking risk in more defensive balance sheets versus cyclical business models. As a result, we maintain our preference for food and beverage, capital goods and select healthcare and financial issuers. In contrast, we are underweight software, consumer cyclicals, chemicals, and structurally challenged media and telecom business models. Within energy, we favor midstream over exploration and production (E&P) and natural gas over oil.

Companies mentioned in this report—percentage of Fund investments, as of 6/30/26: N/A.