ZeGoodTrader

Major shift in European credit sentiment! 📉
📌 For the first time since at least May 2024, investors are showing the MOST bearish stance on the region's high-grade market in 3+ years.

📉 iTraxx Europe index contracts are now net "short risk" ($17bn), a big departure from previous bullish bets.

🎯 War-Gaming Iran: How Credit Navigates Geopolitical Chaos - and how to navigate Financial Markets ! 📊️ 🇮🇷
open.substack.com/pub/zegoodt...

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9/9

My take:

Scenario 2 is base case. But scenario 3 is more likely than markets are pricing. 📈

And if we get scenario 3 — it's the ECB reaction that matters most, not the oil price itself. 💰

Watch energy in CPI. ⚡️ Watch the ECB. Not just Brent. 🛢️

8/9

The catch-22:

Most expect a short conflict. But most investors won't sell if it's short — so the market pressure to end it isn't building.

Meanwhile EUR IG currently sits at 92bp.

Probability-weighted fair value is clearly wider.

7/9

Scenario 5: 'Boots on the Ground' ⚔️

Full-scale regime change. Ground war. Nation-building.
Hormuz disrupted for months or years 🛢️
Sporadic attacks on Gulf infrastructure.

▶️ EUR IG spreads blow out to recessionary levels: >180bp

This is the tail risk nobody wants to price 😥

6/9

Scenario 4: 'Iranian Civil War' ⚠️

Power vacuum after regime collapse → factional conflict.
Iranian oil output (~3.5m bbl/day) disrupted for months.
Neighboring countries drawn in.

▶️ EUR IG spreads hit 120-150bp

Global growth fears dominate 🌍

5/9

Scenario 3: 'Oil Blockade' 🛢️

US/Israel impose a long-term blockade on Iranian oil exports.
~1.6m bbl/day removed from global supply.

Inflation picks up. ECB leans hawkish, outflows start 👎

▶️ EUR IG spreads widen to 100-120bp

Credit starts to feel real pain 🤕

4/9

Scenario 2: 'Mission Accomplished' (base case) 🎖️

US declares victory after days-to-weeks of pressure.
Hormuz reopens — but insurance premiums stay elevated.

▶️ EUR IG spreads settle at 90-100bp

Modestly wider than pre-conflict. Manageable.

3/9

Scenario 1: 'Iranian Spring' 💐

Regime weakened, protests topple the government
Hormuz reopens. Geopolitical risk premium falls globally

▶️ EUR IG spreads TIGHTEN back below 90bp

Best case for credit. Also the least likely 🤔

2/9

5 US-Iran SCENARIOS & their impact on markets by JPM❗🧵

Most people are framing US-Iran as binary: short conflict or long conflict.

👉 BUT there are actually 5 distinct scenarios — and each one implies a very different spread level for Credit! 👇

1/9

Everyone's talking about oil🛢️ 🇮🇷

REAL risk for Markets is the ECB❗

Energy = ~11% of the euro area 🇪🇺 CPI basket

Every time energy spikes, the ECB leans hawkish to kill second-order inflation effects

In 2022, their hiking cycle was more aggressive in standard deviation terms than the Fed's❗

After a tough week, spreads are only roughly flat!
Winners 🟢
○ Energy: -2.7bp
○ Financials: -1.0bp
○ Health Care: -0.3bp

Losers 🔴
○ Real Estate: +1.4bp (rates sensitivity, sitting at 120bp+ — widest in the index)
○ Materials: +1.7bp (energy AND feedstock cost exposure)
○ Industrials: +0.5bp

Everyone reaches for CDS when geopolitics hits 🙀

But here's a better hedge if Iran conflict drags on... ⚔️

Rotate UP in quality 🆙

Higher-rated European firms use significantly less energy per €bn of revenues than lower-rated ones 🛢️

👉 So BBBs → As. Single-Bs → BBs.

Here's the mechanical reason credit indices are selling off so hard!

When vol is low and spreads are tight, systematic models tell you to ADD risk⬆️

So everyone did

Now vol has jumped & spreads have widened — the same models say REDUCE🙃

So everyone is!
It's a systematic unwind feeding on itself

Credit investors spent a year building the biggest bullish CDS position in memory 💰

With Iran & AI, they're now unwinding tens of billions in days 📉

Bullish bets on CDS indexes down ~20% in recent weeks

US & European positioning indicators have flipped negative — investors are now net SHORT risk⚠️

Oil up like Russia-Ukraine 2022. 🛢️
Dollar up like Russia-Ukraine 2022. 💵
EMs getting crushed, worse than 2022. 🌍

And yet — EUR IG spreads are TIGHTER than last Friday 😅

The saving grace? Higher bund yields just triggered a wave of yield buyers into the market.

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#Iran #MiddleEast #Hezbollah

/8

The bottom line:

📈 Base case = short-lived tensions, credit bounces as usual (ex: Iraq, Hames, 9/11)
🛢️ Tail risk = protracted conflict + energy shock + ECB turns hawkish = the 2022 playbook.
👉 The signal to watch: rates vol. Not the VIX.

If MOVE stays elevated, spreads will follow. Eventually.

/7

✔️ Which sectors to own if this drags on?

History says: TELECOMS.
70% hit ratio of tightening 6m after geopolitical events.
Low energy intensity. Limited AI obsolescence risk. Defensive.

❌ What to avoid? Services — consumer slowdown fears dominate.

/6

Here's the double-edged sword ⚔️:

Higher rates are saving credit spreads TODAY 💰.

But if rates vol stays elevated → credit outflows risk → disorderly conditions ⚠️

We've seen this movie before. June/July 2022. 🇷🇺🇺🇦

/5

This week, the Brent crude move is IDENTICAL to week 1 of Russia-Ukraine (I posted earlier this week - 🔗)

The USD performance? Identical

But credit is behaving completely differently — IG spreads are actually TIGHTER vs last Friday

Why? Higher rates are pulling yield buyers into the market

/4

The one scenario where credit really suffers?

When geopolitics drives TWO things simultaneously:

1️⃣ An energy shock
2️⃣ A rates shock

That's exactly what happened with Russia-Ukraine in 2022.
Spread widening lasted 7 months — not 2 weeks.
#CreditSpreads

/3

The pattern is consistent:

📊 IG spreads: +2bp at 1 week post-shock
📊 IG spreads: -3bp at 1 month
📊 IG spreads: -7bp at 3 months
📊 IG spreads: -9bp at 6 months

Geopolitics is noise for credit. Until it isn't.
#CorporateBonds #CreditIG #JunkBond

/2

11 geopolitical shocks since 2000.

EVERY SINGLE TIME, markets panic 😱
EVERY SINGLE TIME, credit eventually rallies 📈

But there's ONE exception — and we might be in it right now.

A thread 🧵

/1

Bonds aren’t a clean haven anymore – they’re an inflation hedge you sell:
📈 10Y UST yield just logged its biggest weekly jump since Apr 2025
📊 Forecasts diverge: ~4.43% (BI) vs ~4.27% (market‑implied) vs ~3.97% (macro model) by end‑2026
War risk + oil + inflation means duration is now a macro call

Geopolitical tail risks are quietly going parabolic in AI models:
☢️ Nuclear use probability in the next 12 months is rising
🛰️ Odds of a satellite attackare climbing
⛴️ Strait of Hormuz closure risk for 2026 is now priced at 99%
Vico’s AI is screaming “risk,” while options markets mostly shrug.

Front-end fear still isn’t biting in US equities:
• VIX9D–VIX spread is sitting near its 2‑yr average
• Past shocks saw this gap explode >15 handles
Translation: either the street is hedged further out the curve, or it’s badly underpricing a real front‑end shock.

Is Iran War Volatility Peaking? 🇮🇷 Here Are Key Charts to Watch 📊️

🛢️ Brent volatility is tracking the 2022 Ukraine pattern almost tick-for-tick
📈 If the analog holds, oil may be near an inflection point – not the start of a new super‑spike

6/6 Follow me @ZegoodTrader & substack.com/@zegoodtrader for more on Credit IG & HY, Rates and across Financial Markets !
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