Global Credit Trader Defaults Tracking the Persistent 'Left Tail'

Credit Strategy Research 23 July 2026 | 7:02PM EDT

Defaults: Tracking the Persistent ‘Left Tail’

n The bifurcation within the HY market has become more pronounced in recent Amanda Lynam, CPA | months in both the USD and EUR markets. While index-level spreads remain very Goldman Sachs & Co. LLC tight by historical standards, CCCs have further decoupled from their Spencer Rogers, CFA higher-rated peers. | Goldman Sachs & Co. LLC n At the same time, commodity costs have increased (again) since the start of July, Sara Grut which we expect will place incremental pressure on corporate margins for | Goldman Sachs International sectors reliant upon such inputs. Intermediate and long-end sovereign bond Shamshad Ali yields (in the US and Europe) have also moved higher over the past few weeks, | presenting a separate, incremental headwind to cost of capital for HY borrowers Goldman Sachs & Co. LLC

needing to refinance. And credit markets globally are digesting a wave of AI-related supply, which has driven sector-specific spread widening. n While we expect this backdrop will be manageable for most leveraged finance issuers, it has two implications to our views. First, the risks to our existing spread forecasts—which already call for spreads to move modestly wider—are now tilted towards more meaningful widening. Second, the combination of higher input and debt service costs further increases the pressure on the most vulnerable firms in the so-called ‘left tail.’ n This backdrop warrants a modest upward revision to our existing default forecasts in the HY market (we already refreshed our leveraged loan default forecasts in May to reflect AI-related Software risks). Importantly, we do not view this as a broad-based deterioration in credit quality but rather as a catalyst for increased dispersion and addition of incremental risk premia. n Given the increasing overlap between borrowers in the syndicated credit and direct lending channels, metrics in private credit are also top of mind. In this universe, we place more emphasis on realized losses and other indicators of stress vs. ‘traditional’ payment default metrics. While data through 1Q2026 reflects a generally stable backdrop, we are monitoring non-accruals, payment-in-kind (PIK), and covenant defaults. If the syndicated financing channels become less receptive to lower-rated borrowers, we see a role for private credit to step in to fill some of that void (consistent with the experience of the past several years).

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs Global Credit Trader

Defaults: Tracking the Persistent ‘Left Tail’

The bifurcation within the HY market has become more pronounced in recent months, as the weakest segment of the rating spectrum has further decoupled from the higher-rated peer group. Year to date, USD CCC and EUR CCC-rated Bloomberg index-level spreads are 173bp and 141bp wider (Exhibit 1), respectively, and stand at the 52nd and 79th percentiles of their post-2010 distributions. This contrasts sharply with BBs and Bs, which remain close to the tight end of their historical ranges.

Exhibit 1: CCCs have underperformed this year Year-to-date cumulative spread change by rating cohort in USD and EUR HY bp bp USD EUR

-50 -100 Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul

Source: Bloomberg, Goldman Sachs Global Investment Research

The CCC underperformance reflects more than a higher-beta response to residual macro uncertainty, in our view. We see three key underlying drivers of this pattern. First, dispersion within the CCC cohort remains elevated, reflecting greater issuer-level differentiation. Second, positive net rating migration (from the CCC category, into B) this year (especially in USD) has created a mechanical effect on index-level valuations, as the tighter-trading CCC bonds exited the rating cohort (Exhibit 2). Third, a persistent ‘left tail’ of issuers remains, where weak balance sheets, sector-specific pressures, and limited refinancing flexibility overlap.

Exhibit 2: Year to date has seen a net…