Taking Position: Respecting the range

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Taking Position: Respecting the range

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Taking Position

Respecting the range

Geopolitics back on the menu 08 July 2026

As geopolitical headwinds re-emerge, iTraxx Main has started to underperform once Credit Strategy

again. We think the downside risks to compression trades are becoming more apparent Europe

in the near term, particularly if oil prices continue to rise. As we have highlighted in the Ioannis Angelakis

past, the European macro cycle is more closely linked to energy markets than the US, Credit Derivatives Strategist

meaning higher oil prices pose a greater headwind for Europe. MLI+44 (UK)20 7996 0059

ioannis.angelakis@bofa.com

Exhibit 1: We see decompression pressure in Main vs CDX IG, should oil prices move higher Barnaby Martin

Geopolitical jitters and higher oil prices likely to put pressure in European vs. US spreads Credit Strategist

MLI (UK)

35 barnaby.martin@bofa.com

Spread differential (RHS) Mohit Agarwalla 135 30 Credit Strategist iTraxx Main

CDX IG 25 mohit.agarwalla@bofa.com 115

95 15

75 5

-5

35 -10

Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jan-25 Jul-25 Jan-26 Jul-26

Source: Bloomberg

BofA GLOBAL RESEARCH

We have also noted recently that, as iTraxx Main 5y compressed significantly versus CDX

IG, the potential for further compression became increasingly limited (see report: Taking

Position: A long-term view). For now, we maintain a decompression bias between iTraxx

Main and CDX IG until the geopolitical dust settles. Recent geopolitical developments

have already led to renewed underperformance in Main, and we think the balance of

risks remains skewed towards further decompression in the near term.

CDS index positioning – the ups and downs

Risk addition was in vogue last week in the synthetics land. We note also the notable