European Credit Weekly: We may have a problem

Research evidence excerpt

European Credit Weekly: We may have a problem

J P M O R G A N Europe Credit Research

24 July 2026

European Credit Weekly

We may have a problem

Europe Corporate Credit - Strategy

Matthew Bailey AC

(44-20) 7134-2384

matthew.a.bailey@jpmorgan.com

Daniel Lamy AC

• This week we published High Yield Talking Points: Fund returns - keeping (44-20)daniel.lamy@jpmorgan.com7134-0467

pace in a tough year and High Yield Talking Points: 1Q26 Issuer

Samuel Hayani AC Fundamentals.

(44 20) 3493-4001

• We think the path of least resistance for spreads is wider, driven by: i) samuel.hayani@jpmorgan.com

renewed energy stress; ii) expensive valuations against dollars and rates; J.P. Morgan Securities plc

iii) weaker seasonality; iv) more neutral investor positioning; and v) more

restrictive monetary policy.

Incredibly, euro credit traded essentially sideways this week, with investment

grade and high yield just 1bp and 3bp wider, respectively. However, in our view,

the resiliency of credit up until now is facing a significant test, and we believe it

is unlikely to withstand the pressure. Looking forward, we think that, for now, the

path of least resistance for spreads is wider.

First, over the past week, we have seen a significant escalation in the Middle East,

including: i) Iran launching strikes against Kuwait desalination plants; ii) the

Houthis attempting to enforce a blockade on Saudi Arabian traffic through the Bab

el-Mandeb Strait; and iii) Trump renewing threats to hit Iranian bridges and power

plants. Together, these drove Brent oil prices temporarily up to above $100/bbl for

the first time since late-May (Figure 1BrentPricevsEURIGSpreads).

While we are sensitive to the speed at which the headlines can change – with