High Yield & Loan Strategy Introducing the BofA Loan Credit Stress Indicator

High Yield & Loan Strategy Introducing the BofA Loan Credit Stress Indicator

The BofA Loan Credit Stress Indicator 17 September 2026 Corrected

We introduce the BofA Loan Credit Stress Indicator, or BofA Loan CSI, developed to High Yield & Loan Strategy represent credit conditions in the Broadly Syndicated Loan market. What started as an United States indicator for the HY asset class years ago, has now been adapted to Loans, helping investors understand market conditions specific to the Loan asset class. Diverging credit Table of Contents quality and increasing rates uncertainty has recently catalyzed a structural disparity in BofA Loan Credit Stress Indicator 2 bond-loan performance, making it necessary to look at the two asset classes separately. Construction of the Indicator 2 The objective of the BofA Loan CSI is to capture a full spectrum of credit inputs and BofA Loan CSI indicates neutral credit 3 create a unified measure of aggregate financial conditions in the leveraged loan market. conditions We do so through three broad categories of factors that cover critical aspects of market BofA Loan CSI vs HY CSI: structurally divergent 4 functioning, namely 1) Volatility, 2) Market access & fundamentals, and 3) Credit Stress. AI weekly pulse 6 Within each category, we select factors that are directly observable from the market and Market Recap: USD HY 10 have good leading relationships to Loan spreads, including measures of volatility, market Market Recap: USD Loans 20 dispersion, distress, funding accessibility, credit quality, and fundamentals. The BofA Market Recap: EUR Loans 25 Loan CSI will be refreshed weekly in our strategy reports, and is intended to be an Glossary 28 indicative metric only, not to be used as a benchmark.

Not as loose as you suspect Neha Khoda Credit Strategist The BofA Loan CSI is quoted as a percentile representing how tight credit conditions are BofAS in the loan market compared to its post-GFC history. The indicator is able to explain a large majority of forward-looking spread variation in loans, and holds an r-squared of Dong Ba 66% to avg next-3m Loan 3yrDM (72% post Covid). The indicator is currently at 49% Credit Strategist implying conditions in the loan market are historically neutral- contrary to the general BofAS narrative of tight valuations that currently exist in the credit space. In contrast, our HY CSI sits at 34%, more in line with that assessment. Elizabeth M. Han Credit Strategist AI Weekly Pulse BofAS USD AI-related issuance totals $549bn YTD, including $259bn in IG, $40bn in HY, and

$12bn in BSL, alongside $237bn issued across Private Credit and other bilateral lending Adam Vogel Credit Strategist (Exhibit 6). Spreads on AI-related credits have compressed significantly over last 1wk: IG BofAS AI now trades 38bps outside of comparable ex-AI credits, vs. Jul 29th peak of 56bps. HY AI now trades 135bps outside of comparable ex-AI, after peaking at 175bps on Sep 9th.

HY and Loan Weekly Recap HY spreads were broadly unchanged on the week at 270bps (+7bps MTD). CCCs continued to widen (+34bps MTD). Higher rates drove –0.65% TR WoW, dragging MTD losses to -0.95%. Issuance totaled $9.3bn over last 1wk, dominated by refis (68%). HY funds saw outflows $0.2bn WTD following last week’s $1.9bn outflow. Internal demand was strong, incl. $2.1bn calls/mty and $5.3bn coupons. We project $1.8bn in calls/mty/coupons next week. Loans returned 0.13% WTD on carry, amid softer technicals w/ $11.8bn of net supply (46% for refi’s) outpacing $2.6bn of demand. LTM Loan DR remains at 1.9% at par and 2.3% by issuer. Technology Loans outperformed, +0.3% WTD.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm 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. Refer to important disclosures on page 30 to 32.

BofA Loan Credit Stress Indicator Financial conditions play a key role in determining phases of a credit cycle- one of the key questions in LevFin. The bust phase is always preempted by a…