Credit Strategy Weekly Under fire on multiple fronts

Credit Strategy Weekly Under fire on multiple fronts

Juan Esteban Valencia The list of problems gets longer still The war in the Middle East is intensifying again and oil prices rose quickly throughout the week, rekindling inflation-related concerns. Sovereign bonds extended the sell-off and yields hit their highest levels in many years. In addition, we saw renewed concerns about AI spending, and the US announced new tariffs again. Unsurprisingly, risk aversion had the upper hand and both risky assets and safe havens suffered. The euro IG credit markets, where spreads at the index level are closing unchanged at what remain very tight spread levels, were the exception. The Technology sector remains vulnerable and weakened clearly across the different indices we follow (EUR and USD IG and HY markets), and the weakness is unlikely to go away any time soon.

The case for credit remains strong, however There was good news, nonetheless, and currently we see no clear contagion from the Technology sector to other sectors. Nor do we believe there will any be either. In addition, the earnings season is showing very strong results, which – if they hold up in the next fortnight –should remain very supportive of credit. At some point, we expect companies in general to start to releverage and weaken the very strong credit fundamentals. Alternatively, we may see less cash to be invested, forcing investors to make clear choices, and this could weaken the bid for credit. But we see no evidence of that happening any time soon, and we expect spreads to remain stable for longer.

Dear reader, the Extel survey closes today and we ask you to consider lending us your support by filling out this important analyst survey.

USD IG continues to underperform the EUR IG index 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