A delicate balance: Supportive technicals continue to offset deteriorating fundamentals in European loans. Strong CLO demand should absorb rising H2 supply, but elevated repricing risk, growing distress and the 2028 maturity wall argue for selectivity in a bifurcated market.

Research evidence excerpt

A delicate balance: Supportive technicals continue to offset deteriorating fundamentals in European loans. Strong CLO demand should absorb rising H2 supply, but elevated repricing risk, growing distress and the 2028 maturity wall argue for selectivity in a bifurcated market.

FICC Research

Credit Strategy

3 July 2026

European Leveraged Loans

A delicate balance

Supportive technicals continue to offset deteriorating

fundamentals in European loans. Strong CLO demand should

absorb rising H2 supply, but elevated repricing risk, growing Madhu Sriram +44 (0) 20 7773 2575

distress and the 2028 maturity wall argue for selectivity in a madhu.sriram@barclays.com

bifurcated market. We maintain our 95.5 year-end ELLI target. Barclays, UK

Srijan Karn

+91 (0) 22 6175 3592

All things considered, European leveraged loans have held up well year-to-date, recovering from srijan.karn@barclays.com

the back-to-back hits of the tech sell-off in February and the Iran war in March, to notch a Barclays, UK

cumulative total return of just under +1.9% up to the end of June, marginally outperforming the

PE HY ex Fin market over the same period (Figure 1).

Looking into H2, the outlook is becoming more balanced. The rebound since April has pushed

almost half of the index above par, increasing repricing risk and likely limiting further

upside. At the same time, fundamentals continue to soften, particularly among lower-quality

borrowers, with downgrades outpacing upgrades and distressed ratios trending higher as a

sizeable 2028 maturity wall approaches. Meanwhile, investor caution around AI-related

disruption continues to weigh on the technology sector.

Offsetting these headwinds, market technicals remain supportive. CLO issuance has already