Hedge the Iran risks

IG Credit Strategist Hedge the Iran risks

Hedge the Iran risks 24 July 2026

Brent oil back near the $100/bbl level suggests the risk of an escalation in Iran have Credit Strategy increased materially. And yet, IG spreads (and equities) have not reacted much. While the United States war has not had a significant impact on the real economy, arguably we are getting closer to exhausting the reserves of oil and other commodities that allowed consumption to remain relatively steady so far (see Global Energy Weekly: The crude reality of oil markets).

The earlier widening in cyclical sectors in IG has by now fully re-traced. That and the lack of a market reaction suggest hedging Iran risks is relatively inexpensive for now. We Yuri Seliger Credit Strategist recommend rotating out of European Yankees into US-issuer credits and the Energy BofAS sector, and underweight sectors that are trading rich vs. prior periods of market stress: Leisure, Yankee banks, Transportation, Autos. Sohyun Marie Lee Credit Strategist It’s all about supply BofAS Sector performance YtD mostly reflects supply, away from a few exceptions. That suggests poor value in sectors that have not issued much this year, and attractive value See Team Page for List of Analysts in those that have. Tobacco, Consumer Products, Transportation have outperformed.

Screening for LBO candidates Most bonds with a CoC (change of control) $101 put covenant, which could be triggered Recent credit strategy research in case of an LBO, are currently trading below par. That means an LBO could be a Publication Name positive event risk for IG bonds (see Situation Room: LBO positive event risk). Inside, we Situation Room Situation Room: Weaker into screen for potential LBO candidates with CoC bonds. bonds and stocks Situation Room Situation Room: It’s all about Supply anxiety = steeper spread curve supply Situation Room Situation Room: The big net The concerns about hyperscaler and M&A supply have pushed spreads wider and the supply 10s30s IG spread curve steeper. We estimate the curve is also about 5bps too steep vs. Situation Room Situation Room: Supply 30yr Treasury yield. The share of back-end supply is higher for hyperscaler issuance. anxiety = steeper spread curve The big net supply Monthly HG Monthly HG Market Review: Market Review June ’26: Lower oil, hawkish Our latest $2.1tr full-year 2026 IG supply forecast implies the IG index notional Fed increases +8.1% this year. Such net supply is not unprecedented. The +8.1% YoY growth IG Credit IG Credit Strategist: Jul ‘26 expected for 2026 would be 58th percentile since 2011. Strategist Credit Investor Survey: Bearish technicals AI impact on IG IG Credit IG Credit Strategist: Summer Strategist ‘25 snapshot of the US IG IG sector spreads impacted by AI were roughly unchanged this week. market

IG market technicals Supply: $11.1bn of issuance this week, expect $30 – $35bn next week. Flows: +5.12bn inflow this past week ending on July 22nd. Weekly technicals details: IG supply net demand at -$21.7bn this week, expect weaker -$4.5bn next week. Dealer inventories: - $4.43bn past week ended Thu. Weekly data and charts inside.

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Weekly technicals We expect IG supply net demand at -$4.5bn next week, weaker than -$21.7bn this week (Exhibit 1). For more details, see Weekly technicals details.

Exhibit 1: IG weekly net technicals ($bn) since week of Dec-29 Exhibit 2: Est. dealer inventories of IG corp bonds since Jul-2025. We expect IG supply net demand at -$4.5bn next week (the week of Jul-27), We estimate IG dealer inventories of US issuer bonds declined to -$9.3bn up from -$21.7bn this week (Jul-20). IG supply: gross issuance + rising stars - currently on Jul-23 from -$7.1bn on Jul-15. Since Jul-2025, dealer inventories fallen angels. IG demand: maturities + calls/tenders + coupons + IG…