Credit vs. CLOs – searching for value

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Credit vs. CLOs – searching for value

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RV Panorama

Decline in rates vol = increased demand for credit 09 July 2026

A decline in macro and rates volatility in recent months, alongside softer yields, has Credit Strategy

improved the backdrop for risk assets. Investor demand for credit has strengthened Europe

notably as all-in yields remain compelling, supporting technicals across both IG and HY Ioannis Angelakis

markets. We find valuations generally rich across risk assets, though more so in large Credit Derivatives Strategist

parts of the CLO market. While CLOs continue to offer attractive spread pick-up versus MLI+44 (UK)20 7996 0059

corporate bonds, the relative valuation gap has narrowed materially over the past year. ioannis.angelakis@bofa.com

Dustin Walpert, CFA

2026 is not a repeat of 2022 EuropeanMLI (UK) CLO Strategist

The macro backdrop today is fundamentally different to that seen during the inflation +44 20 7996 0982

dustin.walpert@bofa.com

shock of 2022. Inflation is much closer to target, policy rates notably higher, and

corporate balance sheets have adapted to a higher funding-cost environment. At the AlexanderInt'l Str. Fin.Batchvarov,Strategist CFA

same time, the share of highly leveraged issuers remains well below the peaks in BofA Europe (Zurich)

alexander.batchvarov@bofa.com

previous credit cycles. As a result, higher yields are far less damaging for credit

Barnaby Martin

fundamentals today than they were four years ago. Credit Strategist

MLI (UK)

Credit technicals remain supportive barnaby.martin@bofa.com

We expect strong technical support for corporate bonds through the summer months.

Primary supply typically slows materially during July and August, while fund-flow

seasonality remains particularly supportive for credit.