Take profit on negative basis trades !

We ended another good week for credit overall, with significant spread tightening seen in US HY and €AT1 spreads mainly (see chart opposite). It followed the biggest net inflows seen in US HY funds since November 2023 ($3.5bn according to LSEG Lipper figures), for the week ended June 25. However, last week’s net inflows actually showed a significant normalization in US HY f unds, with net inflows at $811mn, while US IG funds proved more dynamic ($3.9bn). The same can be said of European credit funds: although the recovery in inflows has been strong for €HY funds, the trend on a 12-week rolling basis shows a barely positive number (€120mn), far from the top of early December (around €300mn), while net inflows in €IG funds have just reached their highest since July 2020 (see chart below left). After a sharp outperformance of cash markets vs CDS (5bp over the past week in €IG!), we recommend taking profits on the negative basis trade we advised Mid May (see Focus on negative basis opportunities , published on 18 May 2025) . Where do we go from here ? Admittedly, technicals still appear strong in credit markets, as shown by the appetite for primary deployed , with an oversubscription rate of 3.7x for Corporate deals priced in June and around 3x for Financial ones. However, a few HY deals recently issued struggled to perform in 2ndary markets (Flora Food, Modulaire , Techem , DL Invest…), signaling a potential change in investor’s appetite for credit at certain yield/spread levels.