MS US Credit Strategy 2Q 26 Fundamentals Check in

M August 11, 2026 09:31 PM GMT

US Credit Strategy | North America Morgan Stanley & Co. LLC Idea

2Q26 results so far point to mostly improving credit Christina C Sigler Strategist fundamentals aided by robust and broadening earnings growth.

Leverage is down across the board, reaching a new 10-year low Joyce Jiang Strategist for the sub-set of HY borrowers. Interest coverage has improved

on the quarter, and cash generation is firmer. Gains are broad- Fernanda Lima Strategist based across ratings, not just top-quality issuers.

Key Takeaways 2Q26 results so far across IG, HY, and Loan issuers (77-82% reported) show generally improving credit fundamentals, with broad-based gains across ratings, unlike the quality-based strength in prior years.

Quarterly y/y EBITDA growth is positive, currently standing at 9.6%, 7.0%, and 8.5% across IG, HY, and Loans, respectively.

IG leverage held flat to slightly lower, and interest coverage rose to 10.49x, with BBBs (nearly three-quarters of reporters) driving broad-based improvement rather than a few high-quality issuers.

HY credit metrics improved overall, with gross leverage down to 3.37x (new low since 1Q15) and FCF-to-debt up to 7.9%, though EBITDA margin and cash-to-debt eased on a q/q and y/y basis.

Loan fundamentals improved on earnings and cash metrics, but net leverage at 3.20x remains 0.10x above year-ago levels. On a q/q basis, only cash-to-debt deteriorated.

In this report, we provide an early read on the fundamental trends that we typically assess in our quarterly fundamentals work based on companies that have reported 2Q26 results through August 7. At this stage of earnings season, approximately ~80% of companies across the IG, HY, and Loan universes have reported.

Given that our analysis currently reflects a smaller subset of the overall universe, the results may differ from those presented in our prior report and are likely to evolve as the remainder of the earnings season progresses. With that caveat in mind, the early read has been notably constructive, with reported results thus far pointing to broadly positive fundamental trends across the US credit markets.

Stay tuned for the complete 2Q26 fundamentals report. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

Exhibit 1: EBITDA growth tracking Exhibit 2: In both HY and Loans, we close to double digits for IG are seeing positive quarterly y/y Current Reporters Median Q EBITDA Y/Y EBITDA growth 14% Current Reporters Median Q EBITDA Y/Y 12% 9.6% 12.0% 10.5% 10% 9.1% 9.7% HY Loans 7.8% 8.1% 7.6% 10.0% 8% 6.9% 8.5% 5.5% 8.0% 6% 5.1% 4.7% 4.8% 6.9% 7.0% 7.0% 6.9% 7.0%

4% 6.0% 5.2% 5.0% 4.6% 2% 4.0% 4.1% 3.8% 4.0% 3.2% 0% 2.7% 2.8% 2.7% % 1.5% 0.7%

0.0% Source: FactSet, Morgan Stanley Research 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25 4Q25 1Q26 2Q26

Source: FactSet, Morgan Stanley Research