Little Evidence of A "Crowding Out" in Credit

Research evidence excerpt

Little Evidence of A "Crowding Out" in Credit

Goldman Sachs Global Credit Trader

Forecast dashboard: Relative value views

Exhibit 16: Relative value views

Relative value views

Corporate Credit

The growth, inflation and monetary policy mix is somewhat more favorable in the US, relative

Overweight USD vs. EUR to Europe. As a result, and relative to the USD market, we forecast a wider peak (and a

slower recovery in 2H2026) in EUR credit spreads.

Regional

EUR IG tranches offer carry pickup relative to USD IG CLO tranches. While the policy and

Overweight EUR IG CLO tranches vs. USD IG CLO

macroeconomic picture is less supportive in Europe, subordination should protect tranches

tranches

up in the capital structure from a continued idiosyncratic default picture.

We have a slight preference for IG vs. HY in the USD market, owing to valuations and our

economists' forecasts for below-potential growth. We view the BB/BBB spread ratio as fairly

Overweight IG vs. HY

priced amid a somewhat more challenging growth and inflation mix, and have a neutral view

between the two rating cohorts.

We prefer owning BBBs over the higher-rated segments of USD IG (As and AAs), as a way

Overweight BBBs vs. higher-rated cohorts to capture additional spread. We also see scope for balance sheet deterioration at the

highest end of the rating spectrum in IG.

Current spread levels indicate that single-Bs offer the lowest credit risk premium relative to

Overweight BBs, Neutral CCCs, Underweight Bs

expected losses among all HY rating buckets.

USD

market HY bonds still provide a superior trade-off between carry and duration compared to

Overweight HY bonds vs. loans leveraged loans. In addition, loans' substantial software sector exposure is likely to present a

sentiment overhang, at least in the near-term.