Summary of Corporate Credit Strategy and Market Overview Industry Overview - The document focuses on the **Corporate Credit** market, specifically **Investment Grade (IG)** and **High Yield (HY)** credit sectors in the US and Europe, as well as their performance metrics and trends as of July 31, 2025 [2][4][24]. Key Points and Arguments Performance Recap Across Asset Classes - The **S&P 500** index is at **6,339**, showing a **1Y return of 14.2%** and a **1M change of 8.6%** [8]. - **US IG Corporates** have a current spread of **76 basis points (bp)**, down from **119 bp** a year ago, indicating tightening conditions [9]. - **US HY Corporates** have a current spread of **278 bp**, down from **453 bp** a year ago, reflecting improved credit conditions [10]. Valuation Comparison - The **Investment Grade Index** has seen a decrease in spreads from **130 bp** in 2022 to **76 bp** currently, indicating a favorable environment for IG credit [56]. - **High Yield spreads** have also tightened, with current spreads at **278 bp**, down from **647 bp** a year ago, suggesting a recovery in the high yield market [10]. Corporate Credit Spreads - The **US IG Credit** market shows a current spread of **74 bp**, while the **CDX IG** index is at **47 bp**, both indicating a tightening trend [9]. - In Europe, the **iTraxx Main** index is at **51 bp**, reflecting a stable credit environment [9]. New Issuance Trends - In 2025 YTD, **Investment Grade issuance** totaled **$1,096.8 billion**, with **Financials** leading at **45%** of total issuance [66]. - **Consumer Staples** saw a significant increase in issuance by **110%** year-over-year, while **Healthcare** issuance decreased by **58%** [66]. Sector Performance - The **Financials** sector remains dominant in IG issuance, while **Information Technology** has seen a notable increase in issuance by **85%** year-over-year [66]. - **Utilities** and **Healthcare** sectors have shown declines in issuance, indicating sector-specific challenges [66]. Yield and Spread Analysis - Current yields for **US IG** are around **3.53%**, while **US HY** yields are at **5.91%**, reflecting the risk-return profile of these segments [13]. - The **spread differential** between **AAA** and **BBB** rated bonds is currently at **93 bp**, indicating a risk premium for lower-rated credits [30]. Important but Overlooked Content - The document highlights the **liquidity metrics** and **fund flows** into the corporate credit market, which are crucial for understanding market dynamics but may not be the primary focus of investors [7]. - The **fundamentals** section discusses the underlying economic conditions affecting credit quality, which is essential for assessing long-term investment risks [18]. Conclusion - The Corporate Credit market is experiencing tightening spreads and improved performance metrics, particularly in the IG sector. The trends in new issuance and sector performance indicate a recovery phase, although certain sectors like Healthcare face challenges. Investors should consider liquidity and fundamental factors when making investment decisions in this space.

Capital Markets Activity & Outlook - Capital markets franchises are experiencing bursts of activity, with investment grade markets running at or near record highs in both the US and Euro markets [2] - The Euro market has an increased share of global financing, attracting US corporates seeking lower yielding markets [3] - The outlook for capital markets remains robust, with leverage finance and US IPOs showing significant activity [3] - The path of least resistance points towards continued robust activity overall, despite some policy uncertainties [4] Interest Rates & Fed Policy - Issuers are not necessarily counting on Fed cuts this year, aligning with market pricing expectations of a couple of cuts through the end of the year and more into 2026 [5] - Elevated term yields in the US Treasury market, with a term premium of around 80 to 85 basis points, act as a tax on mortgage rates and corporate borrowing rates [5][6] - Noise around the potential change in Fed chair contributes to a term premium of approximately 20 to 25 basis points [9] - Markets are pricing in a higher probability of less consensus among FOMC voting members, potentially leading to increased uncertainty and volatility [11][13] Treasury Market - The path of least resistance in treasuries is towards a steeper curve [10] - Treasury financing is expected to remain concentrated in short duration markets [11] Market Sentiment & Risk - The market reacted strongly to news regarding the Fed chair, indicating sensitivity to changes in leadership [8] - Volatility and risk premium may rise as a new Fed era approaches, suggesting a potentially attractive environment for continued financing [18] - Credit spreads are in the bottom 1% over the last two decades, indicating a favorable financing environment [18]