Credit Strategy Weekly Même pas peur

Credit Strategy Weekly Même pas peur

Juan Esteban Valencia Credit recovers but sovereigns remain an issue. The credit markets have regained some of the ground lost previously, but they remain close to the widest levels seen last week. For now, credit fundamentals are still solid, in our view (and we believe the 3Q results confirm this), and the recent turmoil added to the ongoing hostilities in the Middle East and high oil prices should see companies remain cautious when it comes to spending. But volatility in the sovereign bond market has yet to subside and if it continues or deteriorates, that could spell more pain for the credit markets. We stated previously that if sovereign bonds rally or stabilise or even widen gently, we believe credit will rally. Judging by the very recent reaction late this week, the credit markets may even be able to absorb some sovereign bond volatility. Nevertheless, we prefer to remain tactically cautious until we have clear evidence that the worst is behind us. Fortunately, bonds are rising at the time of writing and the US announcement of no more attacks until the mid-terms should help risk appetite gain the upper hand again, for now.

Valuations are becoming very attractive. As mentioned above, we believe that corporate fundamentals are likely to remain solid for now. In addition, credit spreads are now more attractive than they’ve been at any point this year. Credit yields are the most attractive they’ve been in years, and we suspect that the asset class is poised to rally strongly if overall market sentiment doesn’t deteriorate sharply again.

New issue markets also fall victim to the sovereign bond turmoil. The new issue markets were open, but activity has fallen sharply over the past fortnight as sovereign bond volatility has increased. This time, we didn’t see any financial deals emerge, and most activity came from the IG space. In total, €7.23bn was priced (excluding Friday’s deals), which pushed up the year- to-date tally to €722.1bn, still some €20bn higher than a year ago. If the volatility in the sovereign bond market calms down, we expect to see strong new issue volumes, even allowing for blackout periods.

Credit gains back a little ground 160

80 Jul-24 Jan-25 Jul-25 Jan-26 Jul-26

iBoxx Eur Corporates iBoxx USD Corporates

Source: Markit, SG Cross Asset Research/Credit

Societe Generale (“SG”) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that SG may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE APPENDIX AT THE END OF THIS REPORT FOR THE ANALYST(S) CERTIFICATION(S), IMPORTANT DISCLOSURES AND DISCLAIMERS. ALTERNATIVELY, VISIT OUR GLOBAL RESEARCH DISCLOSURE WEBSITE

Contents Summary...........................................................................................................................................3

Macro and single-name strategies .................................................................................................4 Macro strategy ...................................................................................................................................4

Strategy Scorecard ..........................................................................................................................5

The week ahead ...............................................................................................................................6

Market review and outlook.............................................................................................................8 Market review ....................................................................................................................................8 iTraxx and CDX markets.....................................................................................................................9 Cash markets ................................................................................................................................... 10 Yields and curves…