US MARKET INTELLIGENCE | MORNING BRIEFING

Research evidence excerpt

US MARKET INTELLIGENCE | MORNING BRIEFING

a number of MegaCap names reporting this week, but none are expected to have the ability to materially

shift the market narrative.

• HY DEFAULT FORECAST (Nelson Jantzen, here) – He now sees FY26 default rates of 2.25% for

both HY bonds (1.75% prior) and Leveraged Loans (3.0% prior), rising to 2.75% (HY Bonds; up from

2.25%) and 4.50% (LL; unchanged) in FY27. The 25-year average default rates are 3.2% (HY) and

2.9% (LL).

• ISM (this was IB blasted after the print) – A positive headline number that is supportive of the

Cyclicals trade and broadening more generally. Below the surface, there is mild weakness spreading

across Mfg but lower magnitude than weakness seen earlier in the year. The Prices Paid component

remains a problem thought demand indicators are healthy and point to an expansion. The

combination of higher energy prices / shipping prices / tariffs, plus uncertainty on drivers of both

continues to create a headwind for businesses. Some businesses point to the current environment as

being more challenging than during COVID with some APAC clients now shifting their supply chains

to avoid tariffs.

o For markets, this print is supportive of risk assets but underscores that (i) AI build is having a

meaningful positive impact on the global economy, (ii) inflation has not gone away with tariffs

still a meaningful driver of prices, (iii) geopolitical risks (energy/tariffs) remain top of mind for

decision-makers. No changes to our Tactical Bullish view

• JAY BARRY ON UST IMPACTS (here) – On the US side, we know Treasury’s intervention was

against the Euro, so no dollar assets were involved. Meanwhile on the Japanese side, it’s unknown