IG Credit Strategist: From AI to M&A

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IG Credit Strategist

From AI to M&A

IG spreads finally widened in July. AI indigestion accounted for +1.2bps out of the total

+4.9bps of the MtD IG index spread move (as of Thursday July 30). IG technicals were

weaker in July, but not by much, as less strong demand was offset by benign net supply.

In fact, the IG index spread moved largely in line with the broader macro markets despite

the heavy issuance volumes and concerns about the funding needs for AI.

Net index supply should be modest again in August, before turning heavy during in the

September – November period. Given the elevated yields, we look for demand to remain

relatively strong, so supply (actual and expected) should continue to be the marginal

driver of credit valuations. AI spreads have already cheapened materially. Sectors with

heavy M&A issuance calendar have not. Hence, we like AI / hyperscalers over Health

Care, Food & Bev.

July FOMC: Hormetic stress

We think the “stress” of the July FOMC press conference should be supportive to IG

credit. The big selloff in back-end rates helps by 1) suppressing opportunistic supply and

2) improving yield-sensitive demand. The longer-term Fed outlook did not change much.

We expect a steeper IG spread curve as the Fed hikes in 2026.

IG August supply: $140bn

We expect $140bn in US IG supply for August, close to the $142bn price in July. Our

forecast implies the highest supply for the month of August since 2020, and up from

$103bn in August 2025. Despite the heavy volumes, the IG index technicals should

remain favorable as maturities and coupon income offset issuance.

2Q earnings half time update: breadth of strength

By Monday, US IG issuers reported 38% of the expected aggregate 2Q earnings. We

provide an early peak at the results. We are tracking a +17.0% YoY earnings growth for

“core” public US IG issuers ex. Energy, Finance and Mag 7. So far, 2Q earnings have

come in +8.3% above expectations. That’s near the highest level since 2021.

IG market technicals, data and rel-value

Supply: $30.2bn of issuance this week, expect $40 – $50bn next week. Flows: +3.73bn

inflow this past week ending on July 29th.…