We study incentive contracts used by asset management firms in Norway, focusing on how bonus structures impact performance. The incentive contracts in our sample are heterogeneous, with firms rewarding fund managers based on both quantitative and qualitative targets. We find that higher potential bonuses tied to quantitative metrics such as the information ratio lead to better risk-adjusted performance at year-end. Managers at risk of missing bonus thresholds attempt to boost performance through portfolio adjustments, but these efforts backfire, resulting in worse outcomes in the latter part of the year.

Movements in expected inflation affect firm-level credit spreads in a time-varying manner. In times of good inflation, when inflation news is perceived by investors to be positively correlated with real economic growth, increases in expected inflation substantially reduce corporate credit spreads. Meanwhile in times of bad inflation, these effects are attenuated and the opposite can take place. These dynamics are mostly driven by movements in credit risk premia and naturally arise in an equilibrium asset pricing model with a time-varying inflation-growth covariance and persistent macroeconomic expectations.

Inflation risk explains a significant share of the systematic residual variation in yield spread changes beyond credit factors and intermediation frictions. Movements in expected inflation directly affect the real value of debt and, consequently, bond prices. I show that shocks to inflation expectations, volatility, and cyclicality derived from inflation swap prices are important determinants of yield spread movements. Loading patterns become more pronounced with higher ex-ante default risk and cash-flow flexibility but weaken with refinancing intensity. To rationalize the findings, I show that the same patterns emerge in a model of debt rollover risk with stochastic inflation and sticky cash flows.