Credit Outlook for year-end: focus on Banks, Energy and Corp Hybrids

The following document is coming from our Credit Webinar released on 1st October 2025. Credit Allocation:- Technicals have been sharply supporting credit spreads over the past few months... but fundamentals have also driven the tightening trend : improvement in credit conditions, rating migration and default rates.- After reviewing the risks associated to France in a credit allocation (spread sensitivities, share of French credits in iBoxx indices), we conclude on a recommended credit allocation for year-end:i/ It's time to take profit on Corp. Hybrids after their great performance since May 2025, as multiple vs equivalent senior CDS now appears too tight. On the other hand, we keep an Overweight stance on Sub Insurance and Bank AT1s (at the expense of €HY), the latter being notably supported by very robust solvency ratios as well as record P/BV ratios since 2008. ii/ Senior-debt wise, we prefer banks (particularly SP Bank Debt for relative value vs SNP) vs corp non-financialsiii/ Prefer € vs $ for IG Credits, although the arbitrage depends on the sector: Prefer Oil, Tobacco and Mining in € vs $n while European Autos and Telcos have relatively good value in USDBanks:- European and French banks are and should remain very solid across the spectrum, giving them headroom to withstand shocks- M&A will be a driver of both credit quality and spreads' trajectory- Sovereign risk is a threat with France a possible triggerEnergy :- Utilities: a still defensive play, with limited M&A, systematic hybrid refinancing and increasing focus on regulated networks investments- Oil & Gas groups: a more challenging environment calling into question the sustainability of current shareholder policies