Corporate Credit Highlights

• JP Morgan Strategy on IG ratings in 2Q:  “In 2Q26, $227bn of debt was upgraded while just $49bn of debt was downgraded, leading to net upgrades of $179bn, the most since 1Q24. The upgrade/downgrade ratio rose sharply to 4.60x in 2Q26, the highest since 2Q24. This brought the 1H26 upgrade/downgrade ratio from the edge of parity in 1Q to 2.2x now, modestly above the fiscal year (FY) 25 ratio of 1.9x. The investment grade (IG) index ratings composition is still very healthy given that issuance was skewed towards higher quality along with some moderate upward rating bucket migration from the upgrades. BBB debt is just 43.1% of the index, the lowest since 2011, with BBB- debt specifically at a record-low share of just 7.1%. The A rated share of the index at 46.1% is close to the highest since 2011, though it has come down slightly from 46.4% as of year end (YE) 25. AA rated or higher share has also grown to 10.8% of the index, the highest since 2018. Rising Stars totalled $7bn of index eligible debt last quarter (equates to $15.4bn total debt), a slight uptick. On the other hand, Fallen Angel volume fell by half quarter over quarter (QoQ) but still totalled $8bn of index debt migrating from high grade (HG) to high yield (HY) (equates to $15.5bn total debt). Looking ahead, we anticipate an additional $28bn of index eligible Rising Stars ($73bn total) in 2026/27 versus $88bn of index eligible Fallen Angels ($146bn total) that could be downgraded from HG to HY. We note that these are potential candidates from our analyst team and not certain outcomes. Our main takeaway is that ratings momentum shifted materially more positively in 2Q26. While we do anticipate potentially more Fallen Angels than Rising Stars going forward, this isn’t a function of a broader downgrade wave within HG but rather a much smaller HY pool of BBs to become potential Rising Stars. Furthermore, the index-level upgrade buffer built over 2021-25 (25% of IG debt net upgraded) and which is continuing in 2026 via higher-quality issuance along with more ratings upgrades, should provide meaningful shock absorption were the macro backdrop to get worse. ” ¹‍
• Citi IG Strategy on hyperscaler supply:  “We've seen a record amount of supply from the hyperscalers, over $60bn above last year and well above prior years, with several more months left for issuers to borrow further. As a result of this record issuance, net supply now sits at $569bn for the first half of the year, $48bn above last year's full year net supply. The pressure has shown up clearly in hyperscaler spreads, which now sit at their widest levels on a 1- and 3-year lookback at 128bps. Issuance concentration among a handful of large issuers is a familiar feature of the IG market; what's new is the rising concentration in Technology. This year, the top 10 largest IG issuers account for 25.6% of total YTD supply, elevated versus 18.7% at the same point last year. Despite this uptick, the concentration is not unprecedented: the ten largest issuers exceeded a quarter of total issuance (through 7/20) in 2016 (26%), 2018 (26.8%), 2021 (26.7%), and 2022 (27.8%).   Technology, however, has broken from its historical range. Tech issuers make up 22.5% of YTD supply in 2026, up sharply from 9.6% at this point last year and well above the next-highest level of 12.6% through this point in 2021.” ²‍
• Barclays Strategy updated issuance forecasts across credit:  “Investment grade: We have raised our 2026 gross supply forecast to $1.90trn from $1.60trn, 32% above 2025 and above the previous $1.66trn record in 2020. Net issuance should reach about $970bn, nearly double last year’s level and broadly matching the 2020 record. The revision primarily reflects the funding needs of the AI ecosystem, although stronger bank issuance and increased mergers and acquisitions (M&A) activity have also contributed. Tech and AI-related borrowers account for about 19% of year-to-date issuance and 38% of 10y+ supply. As a consequence, the average new issue duration has increased materially year over year (y/y) and is back to levels not seen since the Fed lift-off in 2022. The maturity and coupon redemption remains supportive, but issuance net of maturities and coupons is running at roughly four times the 2025 pace, making supply a larger technical headwind than we expected in January.” ³

• Barclays Strategy updated issuance forecasts across credit:  “Leveraged loans: In contrast, we have lowered our 2026 supply forecast to $425-445bn from $480-520bn, reflecting a weaker first half and a less accommodating rates backdrop. Refinancing remains the largest component, but we have cut our forecast to $190-210bn from $220-240bn. We have also lowered M&A issuance to $80-100bn, while leaving leveraged buyouts (LBO) supply unchanged at $70-90bn. GCP/capex is the exception, rising to $10-20bn, as some AI infrastructure financing will likely begin to tap the loan market. Overall, the mix is shifting away from opportunistic issuance and toward refinancing and genuine new-money supply.” ⁴

• BAML Strategy on relative value across credit:  “Despite a string of unfavorable economic and geopolitical events, leveraged finance (LevFin) credit remains firm, with spreads near tights and yields below 7%, supported by strong supply-demand dynamics. In contrast, IG technicals have deteriorated as issuance has surged and demand softened, contributing to pressure on IG spreads and signs of investor fatigue. Given this diverging technical picture, we think the market is set up for short-term compression driven by wabbling IG spreads but steady HY spreads.  Our base case assumes Iran tensions ease, but sticky inflation keeps the Fed on a slight tightening path. HY is expected to outperform, supported by resilient spreads and lower AI exposure. In contrast, Loans and Private Credit face rising defaults, spread widening, and ongoing AI-disintermediation concerns.  In our optimistic scenario, falling inflation and AI-driven productivity gains support stronger growth, higher real rates, and improved corporate fundamentals, allowing the Fed to hike more while default risk declines. HY benefits from tighter spreads and lower defaults, lifting. Loans and Private Credit see a more meaningful boost from higher carry, spread tightening, and improving credit quality.  While we favor rotating into Loans in an upside scenario, private credit (PC) fails to shine even then.” ⁵
• Barclays Strategy updated issuance forecasts across credit:  “High yield: We have raised our gross supply forecast to $370-390bn from $340-380bn, primarily because H1 26 volatility delayed some refinancing rather than eliminating it. We expect $150-160bn of bond-for-bond refinancing and have increased our bond-for-loan estimate to $90-110bn, as issuers address a record near-term maturity wall and fixed-rate bonds remain attractive relative to loans. We also forecast $65-80bn of M&A/LBO issuance and $40-55bn of GCP/capex and other supply, including some AI-related funding. The calendar should be back loaded, with about 56% of issuance expected in the second half, raising the risk of indigestion if delayed refinancing and capex supply arrive together.” ⁶

Definitions
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• Assets under management (AUM) is the total market value of the investments managed by a person or entity on behalf of investors.
• Bank loans (also known as floating-rate loans or leveraged loans) invest in bonds and other fixed-income securities that have variable, as opposed to fixed, interest rates.
• A basis point (bp) is one hundredth of a percent, so 100 basis points is equivalent to 1%.
• Beta measures an asset's price volatility relative to the broader market. It is a gauge of systematic risk—the unpredictable market forces that
• The Bloomberg Global Aggregate Bond Index (global IG index) is a flagship fixed-income benchmark that measures global investment-grade debt from developed and emerging markets.
• A bond isa fixed-income instrument and investment product where individuals lend money to a government or company at a certain interest rate for an amount of time. The entity repays individuals with interest in addition to the original face value of the bond.
• Broadly syndicated loans (BSL) are a type of loan that will typically be arranged by an investment bank and then syndicated to a large group of commercial banks and specialist loan investors.
• Capital expenditure is the money spent on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
• Collateralized loan obligation (CLO) is a structured financial product that bundles a pool of lower-rated corporate loans and sells them to investors in tranches with different risk/return profiles.
• A corporate bond isa debt security that is issued by a company to raise capital.
• A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
• The credit market refers to the marketplace through which companies and governments issue debt to investors in exchange for regular interest payments. ‍
• Credit rating is when bond ratings are grades given to bonds that indicate their credit quality as determined by private independent rating services such as Standard &Poor's, Moody's and Fitch. These firms evaluate a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a timely fashion. Ratings are expressed as letters ranging from `AAA', which is the highest grade, to `D', which is the lowest grade.
• Credit spread is the difference in yield between two debt securities with the same maturity but different credit quality.
• Derivative is a type of financial contract whose value is dependent on an underlying asset, a group of assets, or a benchmark. It's an agreement set between two or more parties that can be traded on an exchange or over the counter.
• ‍Duration is often used to measure a bond’s or fund’s sensitivity to interest rates. The longer a fund’s duration, the more sensitive it is to interest-rate risk. The shorter a fund’s duration, the less sensitive it is to interest-rate risk.
• Distressed Exchange is a negotiation process between a financially troubled company and its creditors where the company seeks to restructure its debt without filing for bankruptcy.
• EBITDA (earnings before interest, taxes, depreciation, and amortization) is a standard of measurement banks use to judge a business’ performance.
• A Fallen Angel is a bond that was initially given an investment-grade rating but has since been reduced to a junk bond status.
• ‍High-yield bonds (or junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds.
• The Hyperscalers Index refers to a financial benchmark that measures the equity or corporate debt performance of major cloud data center and Artificial Intelligence (AI) providers.
• The ICE BofA US Corporate Index isa benchmark index that tracks the performance of investment grade corporate debt in the United States.
• Investment grade refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody’s.
• Investment Grade (IG) Index refers to the ICE BofA US Corporate Index.
• An issue or issuance is a process of offering securities in order to raise funds from investors. Companies may issue bonds or stocks to investors as a method of financing the business.
• Implied default rate is a measure of the market's perception of the likelihood that a borrower will default on their debt obligations.
• ‍Leverage refers to using debt (borrowed funds) to amplify returns from an investment. A leveraged loan is a type of loan made to borrowers who already have high levels of debt and/or a low credit rating. Lenders consider leveraged loans to have an above-average risk that the borrower will be unable to pay back the loan (also known as the risk of default).
• ‍Leveraged Buyout is the acquisition of a company primarily using borrowed funds, often secured by the assets and cash flows of the acquired company.
• Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
• Maturity (or maturity wall) is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist.
• Mergers and Acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorption, a merger, a tender offer or a hostile takeover.
• Morningstar LSTA US Leveraged Loan Index is a market-value weighted index designed to measure the performance of the US leveraged loan market.
• Mortgage-backed securities (MBS) are investment products backed by a pool of mortgage loans.
• Net debt / EBITDA ratio is a type of leverage ratio used to determine if a borrower generates sufficient operating cash flows to meet its mandatory interest obligations and pay down its outstanding debt balance in full at maturity.
• ‍Option adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.
• Par-weighted refers to a method of calculating averages where the individual values are weighted by their par (face) value. This means that larger holdings or transactions have a greater influence on the final average.
• Post-GFC refers to the period following the Global Financial Crisis (GFC), which began in 2007-2008. This period is characterized by economic recovery, changes in financial regulation, and evolving global financial systems.
• A refinance (ReFies) refers to the process of revising and replacing the terms of an existing credit agreement, usually as it relates to a loan or mortgage.
• ‍Spread is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, represented by Treasury bonds. Spread income refers to the additional income from this difference.
• The 10-year treasury bond yield is the interest rate the U.S. government pays to borrow money for a decade, serving as a benchmark for other interest rates and a key indicator of investor sentiment about economic conditions.
• Total Return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period.‍
• Weighted Average Coupon is the average gross interest rate of the underlying mortgages in a mortgage-backed security at the time it was issued.
• Weighted-Average Rating Factor (WARF) is a numerical representation of the credit risk of a portfolio calculated by Moody’s.
• ‍Yield isa measure of the profit that an investor will be paid for investing in a stock or a bond. It is usually computed on an annual basis.
• Yield to worst (YTW) estimates the lowest possible return on a bond without the issuer defaulting.