Technicals offsetting so far geopolitical uncertainty

The credit market reaction has so far been pretty muted to Mideast accrued tension: Corporate cash spreads have even managed to tighten slightly vs swaps (-0.3bp) , while bank senior spreads compressed by 1bp. On the iTraxx side, indices are slightly wider over the week (+1.3bp for the Main, +5.4bp for the X-Over), but the movement remains fairly limited given the uncertain geopolitical context as well as the increase in equity volatilities on both sides of the Atlantic (+2bp roughly). However, some signs of weakness were seen in some High Beta segments at the end of last week (+6bp for the €HY iboxx indices, +2bp for banks’ AT1). US attacks on Iranian nuclear sites over the week-end have, so far, failed to trigger any significant market impact (oil prices are even down on a daily basis, meaning the market does not believe in the risk of Iran closing the Strait of Hormuz among potential Iranian response to the US attacks). However, the risk of an Iranian escalatory response remains, while we will be closely moving to a new set of tariff news early July (after the 3-month pause of reciprocal tariffs). On the positive side, inflows continue to benefit the credit market, with an additional $930mn last week in US IG funds and $356mn in HY ones, while inflows in Europe were even moving up vs the previous weeks to €2.5bn in €IG funds and €618mn in €HY funds.