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 standard credit factors and intermediation frictions. Expected inflation,inflation uncertainty, and inflation cyclicality help account for bond-level movements and the residual common component in corporate credit. The effect is stronger for firms closer to default or less able to absorb cost shocks, such as highly leveraged and lower-rated issuers and firms whose margins are squeezed when producer prices rise, and weaker when debt adjusts more quickly through refinancing or floating-rate borrowing. Together, these patterns link residual spread commonality to heterogeneous exposure to inflation risk.