From AI to M&A

IG Credit Strategist From AI to M&A

IG spreads finally widened in July. AI indigestion accounted for +1.2bps out of the total Credit Strategy +4.9bps of the MtD IG index spread move (as of Thursday July 30). IG technicals were United States weaker in July, but not by much, as less strong demand was offset by benign net supply. In fact, the IG index spread moved largely in line with the broader macro markets despite the heavy issuance volumes and concerns about the funding needs for AI.

Net index supply should be modest again in August, before turning heavy during in the September – November period. Given the elevated yields, we look for demand to remain relatively strong, so supply (actual and expected) should continue to be the marginal Yuri Seliger Credit Strategist driver of credit valuations. AI spreads have already cheapened materially. Sectors with BofAS heavy M&A issuance calendar have not. Hence, we like AI / hyperscalers over Health Care, Food & Bev. Sohyun Marie Lee Credit Strategist July FOMC: Hormetic stress BofAS We think the “stress” of the July FOMC press conference should be supportive to IG credit. The big selloff in back-end rates helps by 1) suppressing opportunistic supply and See Team Page for List of Analysts 2) improving yield-sensitive demand. The longer-term Fed outlook did not change much. We expect a steeper IG spread curve as the Fed hikes in 2026.

IG August supply: $140bn Recent credit strategy research We expect $140bn in US IG supply for August, close to the $142bn price in July. Our Publication Name forecast implies the highest supply for the month of August since 2020, and up from Situation Room Situation Room: Summer $103bn in August 2025. Despite the heavy volumes, the IG index technicals should bummer for bonds remain favorable as maturities and coupon income offset issuance. Situation Room Situation Room: July FOMC: Hormetic stress 2Q earnings half time update: breadth of strength Situation Room Situation Room: IG August supply: $140bn By Monday, US IG issuers reported 38% of the expected aggregate 2Q earnings. We Situation Room Situation Room: 2Q earnings provide an early peak at the results. We are tracking a +17.0% YoY earnings growth for half time update: breadth of “core” public US IG issuers ex. Energy, Finance and Mag 7. So far, 2Q earnings have strength come in +8.3% above expectations. That’s near the highest level since 2021. Monthly HG Monthly HG Market Review: Market Review June ’26: Lower oil, hawkish Fed IG market technicals, data and rel-value IG Credit IG Credit Strategist: Jul ‘26 Supply: $30.2bn of issuance this week, expect $40 – $50bn next week. Flows: +3.73bn Strategist Credit Investor Survey: inflow this past week ending on July 29th. Weekly technicals details: IG supply net Bearish technicals demand at -$5.0bn this week, expect weaker $20.0bn next week. Dealer inventories: IG Credit IG Credit Strategist: Summer Strategist ‘25 snapshot of the US IG +$5bn past week ended Thu. AI impact on IG: IG sector spreads impacted by AI were market roughly unchanged this week. Weekly data and charts inside.

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Weekly technicals We expect IG supply net demand at $14.5bn next week, weaker than -$5.0bn this week (Exhibit 1). For more details, see Weekly technicals details.

Exhibit 1: IG weekly net technicals ($bn) since week of Jan-05 Exhibit 2: Est. dealer inventories of IG corp bonds since Jul-2025. We expect IG supply net demand at $14.5bn next week (the week of Aug-03), We estimate IG dealer inventories of US issuer bonds increased to -$6.7bn up from -$5bn this week (Jul-27). IG supply: gross issuance + rising stars - currently on Jul-30 from -$9.3bn on Jul-22. Since Jul-2025, dealer inventories fallen angels. IG demand: maturities + calls/tenders + coupons + IG ETF / fund have fluctuated but generally stayed negative.…