Global Strategy "US 2H 2026 Outlook: AI keeps the cycle alive, but dispe..."

Research evidence excerpt

Global Strategy "US 2H 2026 Outlook: AI keeps the cycle alive, but dispe..."

redit-positive for the highest-quality issuers, but is

equally a disruptive force for lower quality middle-market borrowers. Hyperscaler capex

continues to be financeable with debt issuance being met with strong demand,

accelerating cloud revenue growth supports the investment case, and we now expect

US IG issuance of $1.9tn and US HY issuance of $440bn in 2026, both revised higher as

AI capex and M&A broaden the supply base. However, lower-rated issuers with weaker

structures are also increasing their market exposure, creating more fragility under the

surface. Software disruption is increasingly visible in tech loan prices, business services

represent the next pressure point, and private credit marks are still overly optimistic

relative to public-market comparables. We expect private credit default rates to rise by

4-5% cumulatively through H1'27, alongside more high-profile default events and

wider dispersion across BDCs and private lenders. The implication is not an immediate,

broad-based credit break, but rather a fragmented downturn: high-quality AI

beneficiaries continue to fund the boom, while lower-quality, AI-exposed, and floating-

rate borrowers absorb the resulting stress.

Investment Conclusions and Forecasts: spreads rangebound first, wider later

First, the strongest macro data may already be priced. Recession risk has declined and

technical demand remains robust, but tight starting spreads, extended HY positioning,

and weak midterm seasonality leave credit vulnerable to a Q4 repricing. Second, private

credit is leading this cycle. Rising non-accruals, elevated PIK income, optimistic marks,

and BDC redemption pressures point to a more prolonged stress cycle, particularly in