Global Credit: What We‘re Watching

Research evidence excerpt

Global Credit: What We‘re Watching

M O R G A N S T A N L E Y R E S E A R C H

Global Credit: What We’re Watching

August 3, 2026

Valuation Methodology and Risks

Region Idea Current Levels Rationale Risk

We prefer HY data center construction debt over unsecured The sector is increasingly exposed to execution and capex

OW HY Data Center vs. corporate debt, as investors benefit from collateral-backed risks, including delays in power availability, slower-than-

US HY DC Debt: 358bp

Unsecured corporate debt structures, shorter duration, improving LTVs post-construction, expected hyperscaler leasing activity, and potential

and better risk-reward than traditional unsecured lending. oversupply.

We expect bearish compression this year as supply has been

BBBs: 96bp elevated this year, but skewed towards high quality issuers. For

Single A: 66bp high quality companies, tight spreads, significant debt capacity Lower hyperscaler and M&A issuance, both of which could

US OW BBBs vs. HQ

AA: 60bp AAA: and ramping capex incentivize issuance while BBBs are more lead HQ to outperform.

41bp susceptible to rising costs of capital if their credit metrics

worsen.

French risk premia within corporate credit has broadly tracked

the performance of OATs over the past two years, leaving these

cohorts exposed to further widening in sovereign spreads. Buy

Buy French Bank CDS vs. French Bank CDS vs. Sell iTraxx Senior Financials However, we

EU Sell iTraxx Senior +7bp think cash spreads have underperformed the moves in OATs. The risk to this trade is a sharp compression in French risks.

Financials We prefer to position for this move by buying protection on

French Bank CDS versus selling protection on iTraxx SnrFins,

as the relationship has not fully priced in the recent widening in

OATs.