Morgan Stanley Turns More Positive on European Credit

what happened

Newsmetry API reports that Morgan Stanley has withdrawn its cautious stance on European credit. The bank’s analysts now see a more attractive risk-reward balance, pointing to spreads at two-year wides, improving economic growth and solid underlying fundamentals.

They say investment-grade debt should be able to withstand higher interest rates because issuers have low leverage and substantial long-dated fixed-coupon debt. Lower-rated high-yield bonds remain more exposed, however. The analysts expect further decompression across high-yield ratings, with single-B securities considered the most vulnerable. They also continue to identify real estate as the sector most at risk if rate conditions deteriorate further, adding that valuations do not fully reflect this exposure.

why it matters

The shift is more supportive for European investment-grade credit than for lower-rated debt. Expected widening between high-yield rating tiers could keep investors focused on issuer quality, while real estate credit remains particularly sensitive to higher rates and valuation risk.

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