Credit Fundamentals: Strained HY-Fundamentals Face the Earnings Test

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Credit Fundamentals: Strained HY-Fundamentals Face the Earnings Test

Deutsche Bank

Research

Global Credit Strategy Date

23 July 2026

Credit

Fundamentals

Strained HY-Fundamentals Face the

Earnings Test

Cem Keltek

After introducing our new flagship publication on IG-fundamentals last week, we

European Credit Strategist

move down the rating stack and take a look at HY-issuers. Much less exposure to +49-69-910-48370

the Tech/AI boom and more headwinds from higher rates have seen €HY & $HY

fundamentals deteriorate more than those of their IG-rated peers over the last few Steve Caprio

Head of European and US Credit Strategy

years. And particularly for European issuers, Q2 earnings look unlikely to mark a

+44-20-754-16176

turnaround. Looking ahead, we expect several themes to remain in focus:

Karthik Nagalingam

1) Margins. On both sides of the Atlantic, issuers' EBITDA margins have remained US Credit Strategist

under pressure during Q1 earnings and more so among $HY issuers. But a +1-212-250-0521

broadening US AI capex boom could help $HY issuers more than their €HY Gaurav Chaudhary

counterparts. At the same time, US-issuers have already been better at keeping Research Associate

leverage in check - among BBs in particular. €BB's net leverage remains 1x higher

than pre-2022 while $BBs have barely budged on this metric.

2) Elevated B leverage. B's net leverage remains elevated in €HY as well as $HY and

has increased more significantly in the US over the last few years. Also here,

relatively stronger US earnings could help defuse tensions while it could take

stronger European growth to lead €B leverage broadly lower. And overall, given the

elevated leverage levels and prevalent growth risks, it should be too early to expect

major improvements.