UBS US Credit Outlook Jackson Hole Raises the Stakes

ab Global Research 30 August 2026

Global Strategy Global Strategy

US Credit Outlook: Jackson Hole Raises the Global

Stakes Matthew Mish, CFA Strategist Executive Summary Sachin Ganesh The central call from our June outlook was that 2H26 would be defined by dispersion Associate Strategist rather than a broad credit selloff. This view has largely played out: BBs and Bs outperformed CCCs, Energy and Basic Industries materially outperformed while Technology and Communications lagged, and issuer selection mattered more than Julien Conzano market beta. However, we underestimated the persistence of supportive technicals, the Strategist resilience of leveraged loans, and overestimated the pace at which private credit and AI- disruption risks would emerge. Jackson Hole does not change our core framework, but it does change the key catalysts. Chairman Warsh's emphasis on inflation persistence, Henry Morrison-Jones full employment, and relatively loose financial conditions moves the odds of Fed Strategist tightening materially higher in the distribution of outcomes than we assumed in late June. Bhanu Baweja Strategist Taken together, our conviction remains high that dispersion will be the defining theme for 2H26: we are still constructive on higher-quality spread products but are increasingly cautious on duration exposure. Relative to June, we are now more constructive on leveraged loans versus high yield, less constructive on longer-duration investment grade, and still see BB spreads outperforming relative to CCCs. At a sector level, our preferred long exposures are Financials, Consumer Non-Cyclicals, and Healthcare, while we are cautious on long-duration IG sectors such as Utilities, on Tech due to accelerating AI debt funding needs, and on lower quality Retail credits. Our updated end-Q3 spread targets are IG 82bp, HY 275bp and LL 475bp (vs. spot levels of 78, 260 and 476bp).

2H Outlook Scorecard: Right on pain points, underestimated loan resilience The June outlook argued that AI would continue extending the cycle for stronger issuers while driving greater dispersion across ratings, sectors, and business models. That framework remains intact.

What has worked so far: ˜ Dispersion became the dominant theme. BB and B-rated credit materially outperformed CCCs, IG and HY Tech and communications underperformed, while energy outperformed – validating the call that differentiation would matter more than outright beta. ˜ The late-cycle diagnosis held up. Macro conditions remained resilient, issuance stayed strong, and spreads remained tight despite growing weakness beneath the surface. ˜ High quality outperformed lower quality. The key distinction was at a rating level (BB/B versus CCC) as opposed to the index level (HY vs. IG). Investors rewarded liquidity, stronger balance sheets and natural resources exposure. ˜ The AI financing cycle remained intact. Funding capacity became a dominant theme, and credit markets did not become a constraint on the AI buildout.

What has not worked: ˜ We were not calling for compression in leveraged finance. Leveraged loan spreads outperformed our Q3 expectations as technicals, carry demand, and resilient growth overwhelmed deteriorating fundamentals. ˜ We were too cautious on leveraged loans relative to HY. We correctly

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anticipated growing borrower-level dispersion, but underestimated demand for floating-rate carry and limited-duration exposure. ˜ Private-credit stress was slower than expected. Non-accruals, PIK income, marks, and redemptions deteriorated on net, but not to the extent implied by our more cautious mid-year view. ˜ Business services remained resilient. The anticipated next leg of AI disruption outside of software has not yet materialized at scale, as firms adapted more effectively than expected and implementation realities tempered disruption concerns.

Jackson Hole: Duration Risk Moves Back to Center Stage The key Jackson Hole takeaway was not a hike signal: it was a reaction-function shift.Chairman Warsh…