US-Iran war and AI threats add pressure to global credit

US and European credit markets are on edge, and investors are starting to hedge while it’s cheap. Banks and financial advisors like Barclays and Morgan Stanley are recommending clients turn to credit default swap (CDS) protection on the high-yield US index to hedge against possible defaults, Bloomberg reports. This comes as risks around prolonged geopolitical tensions, AI concerns, and a weakening US jobs market threaten markets.

Turning to derivatives: Prices were up 3 basis points this past week for protection on high-grade US corporate bonds as spreads on cashbonds tightened. Investors are being advised to sell less profitable protection to fund the swaps, and bullish positions in high-grade credit-default swap indexes fell by about a fifth in recent weeks, according to data from the business information service.

Why now? The risks from geopolitics and signs of cracks in the private credit market aren’t fully priced in, making this a good time to lock in protection, portfolio manager at Saba Capital Management Andrew Weinberg said.

ICYMI- Private credit is under the microscope. The asset class is currently struggling with slow inflows, mounting withdrawals, and warnings of defaults spiking as corporate, AI boom-linked debt rises. UBS forecast private credit default rates could reach 15%, though Ares Management’s CEO Mike Arougheti called that “absolutely wrong,” and Goldman Sachs’ CEO said the fears are overblown.

MARKETS THIS MORNING-

Asia-Pacific markets rebounded strongly in early trading this morning, coinciding with falling oil prices and easing concerns over the war in the region, especially after Trump said the war is nearing its end. Japan’s Nikkei surged over 3%, while South Korea’s Kospi jumped more than 6%. The sentiment is yet to hit Wall Street, with futures broadly in the red.

EGX30	46,415	-0.8% (YTD: +11.0%)
USD (CBE)	Buy 52.73	Sell 52.86
USD (CIB)	Buy 52.74	Sell 52.84
Interest rates (CBE)	19.00% deposit	20.00% lending
Tadawul	10,831	-1.6% (YTD: +3.2%)
ADX	9,863	-0.4% (YTD: -1.3%)
DFM	5,754	-2.8% (YTD: -4.9%)
S&P 500	6,796	+0.8% (YTD: -0.7%)
FTSE 100	10,250	-0.3% (YTD: +3.2%)
Euro Stoxx 50	5,685	-0.6% (YTD: -1.8%)
Brent crude	USD 88.84	-10.2%
Natural gas (Nymex)	USD 3.08	-1.2%
Gold	USD 5,152	+1.0%
BTC	USD 68,460	+3.1% (YTD: -21.9%)
S&P Egypt Sovereign Bond Index	151.78	-0.3% (YTD: -0.1%)
S&P MENA Bond & Sukuk	1,030	+0.1% (YTD: +3.8%)
VIX (Volatility Index)	25.73	-13.3% (YTD: +84.6%)

THE CLOSING BELL-

The EGX30 fell 0.8% at yesterday’s close on turnover of EGP 9.0 bn (39.1% above the 90-day average). Local investors were the sole net buyers. The index is up 11.0% YTD.

In the green: AMOC (+5.7%), Heliopolis Housing (+5.4%), and Orascom Development (+3.4%).

In the red: E-finance (-5.9%), Egypt Aluminum (-5.9%), and Ibnsina Pharma (-4.8%).