Barclays_US_Credit_Alpha_Fed_cut_in_sight

This document is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendations offered in this report.Please see analyst certifications and important disclosures beginning on page 35.US Credit AlphaFed cut in sightThis week, we provide our top swaps in Yankee banks, discusswhy we favor noncyclicals over cyclicals in high yield, analyze20 years' worth of hybrid extensions, and update our intrinsicestimates for the CDX and iTraxx September 2025 rolls. US Credit AlphaOverview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Labor market data are flashing amber, reinforcing our view for a September rate cut. Corporateactivity appears fine for now, but tariffs should create headwinds in 4Q. With lower yieldsintroducing the potential for demand deterioration, valuations are asymmetric, and spreadsappear too tight. US FocusA history of hybrid extensions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Over the past two decades, $140bn of hybrid debt has been extended past the first reset. Wefind that extensions are highly correlated with hybrid-to-senior ratios. For non-bank hybridsspecifically, those with ratios of less than 2.0x at first call are extended 90% of the time.US Investment GradeTop swaps in Yankee banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Recent beta compression has left the Euro Yankee-Big 6 basis near the most compressed levelssince 2021, but on a ratio basis, there may be further room to run. Deregulation is more of a riskfor US banks, although (French) political risks could resurface. We highlight attractive swaps.US High YieldCautious sector stance warranted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Spreads are flat year-to-date despite a later-cycle macro environment. Cyclicals haveunderperformed, although CCCs skew the magnitude materially. We expect thisunderperformance to continue as spreads widen into year-end and prefer noncyclicals. FICC ResearchCredit Strategy5 September 2025SIGNATUREBradley Rogoff, CFA+1 212 412 7921bradley.rogoff@barclays.comBCI, USDominique Toublan+1 212 412 3841dominique.toublan@barclays.comBCI, USCompleted: 04-Sep-25, 22:17 GMT Released: 05-Sep-25, 10:30 GMTRestricted - ExternalUS Credit Derivatives and MacroAnother look at the CDX and iTraxx September 2025 rolls. . . . . . . . . . . . 28We provide updated intrinsic roll estimates for the iTraxx and CDX indices. We see CDX.IG andCDX.HY at +4.6bp and +14bp ($0.03), and Main, SenFin, and Xover at +6.1bp, +5.8bp, and+13.2bp, respectively. Based on our estimates, Xover-Main and H