IG Credit Strategist: Hedge the Iran risks

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IG Credit Strategist: Hedge the Iran risks

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IG Credit Strategist

Hedge the Iran risks

Hedge the Iran risks 24 July 2026

Brent oil back near the $100/bbl level suggests the risk of an escalation in Iran have Credit Strategy

increased materially. And yet, IG spreads (and equities) have not reacted much. While the United States

war has not had a significant impact on the real economy, arguably we are getting closer

to exhausting the reserves of oil and other commodities that allowed consumption to

remain relatively steady so far (see Global Energy Weekly: The crude reality of oil

markets).

The earlier widening in cyclical sectors in IG has by now fully re-traced. That and the lack

of a market reaction suggest hedging Iran risks is relatively inexpensive for now. We Yuri Seliger

recommend rotating out of European Yankees into US-issuer credits and the Energy Credit Strategist BofAS

sector, and underweight sectors that are trading rich vs. prior periods of market stress: +1 646 855 7209

Leisure, Yankee banks, Transportation, Autos. yuri.seliger@bofa.com

Sohyun Marie Lee

It’s all about supply CreditBofAS Strategist

Sector performance YtD mostly reflects supply, away from a few exceptions. That +1sohyun.lee@bofa.com646 855 7217

suggests poor value in sectors that have not issued much this year, and attractive value See Team Page for List of Analysts

in those that have. Tobacco, Consumer Products, Transportation have outperformed.

Screening for LBO candidates

Most bonds with a CoC (change of control) $101 put covenant, which could be triggered Recent credit strategy research

in case of an LBO, are currently trading below par. That means an LBO could be a Publication Name

positive event risk for IG bonds (see Situation Room: LBO positive event risk).