The European Credit Strategist Omni Bessent

The European Credit Strategist Omni-Bessent

That old financial repression feeling… 21 August 2026

A summer of “activism” by the US Treasury: first co-ordinated currency intervention Credit Strategy with Japan, and now buyback support for longer-dated Treasury bonds. With just 10 Europe weeks to go until US midterms, it’s crunch time for easing consumer affordability: 30yr Barnaby Martin US mortgage rates are their highest in over a year, and average US gasoline prices are Credit Strategist MLI (UK) still $1.44 above where they started 2026. We see the theme of yield curve support as good news for firms who are longer-dated “funders”. Utilities and telecoms should see tailwinds, therefore. And the read across should be positive too for Reverse Yankee Ioannis Angelakis Credit Derivatives Strategist spreads, given US issuers make up a large part of the 15+yr Euro IG market. MLI (UK) Hawkish Fed? Even better Mohit Agarwalla Credit Strategist This week’s US Treasury intervention comes on the back of an ugly July/August for long- MLI (UK) dated bonds: 30yr Treasury yields back to 2007 levels, -6.7% total returns for French 15+yr govt debt, and 30yr yields exceeding S&P dividend yields by a whopping 4% now. Our US rates strategists argue that the Fed can play its part too in reducing long-end yields: by taking a more hawkish stance, and reducing fears over its inflation fighting Recent Credit Strategy publications: credibility. A hawkish Warsh at Jackson Hole, therefore, might just be the catalyst to help Pain trades and the main trades long-dated Euro credit post a strong September performance. “We meet again, Mr. Bond” Rates shocks and credit: rules of engagement Credit Strategy 2026 Primer No two rates shocks are ever the same: front-end, long-end, periphery, core…there have been many flavours over the years. Today, we don’t see steep government bond curves Let’s get hyper as particularly problematic for credit. In fact, we view it as a helpful backdrop, as it should keep retail inflows strong. What would worry us more would be a rates shock at Tech-tock the front-end of the yield curve, as this would directly impact financial conditions for CreditBook: Another half to go firms: 60% of € IG bonds have maturities less than 5yrs. But the case for a shallow ECB hiking cycle (and cuts in ’27) remains on-track. Charts 12-14 are a reminder that when it Credit Investor Survey; The heat is on comes to rates shocks and credit: 1) the higher the starting yield, the less bad the outcome for credit, and 2) the slower the speed of the shock, the less bad for credit too. 2H credit: it’s coming home

The peace trade High quality vs. “hyper” quality The last two months have seen a pronounced underperformance in higher-quality global No bubble trouble in bonds credit spreads (AA), versus lower-quality (BBB). Of course, part of the AA widening CreditBook: Sun still shining reflects the recent weakness in hyperscalers. But even when excluding these, AA spread underperformance can still be seen – especially in markets where there has been heavy Let’s get real AI issuance. With such large volumes of hyperscaler paper being brought to the market, the risk is that it increasingly “crowds out” demand for other high-quality debt, reducing HY Strategy: HYer for longer spread dispersion across the market too. In Euros, AA credit has held up much better Tech makes the world go round thus far, largely because hyperscaler issuance YTD hasn’t been that daunting. But if the tables turn, post summer, higher quality Euro credit could be vulnerable, we think. CreditBook: American Fever

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