How to Trade Private Credit Spillovers Across All Markets

UBS warns of mounting risks in private credit and AI-driven disruption that remain underpriced by broader markets. They recommend five specific relative-value hedges across equities, credit, and rates to capitalize on expected credit quality deterioration and market dispersion.

Key Takeaways

• 1.UBS expects wider credit spreads driven by private credit risks and structurally weaker credit quality later in 2026.
• 2.Publicly traded BDCs are seeing 'early cracks' with tech/software loans likely facing further valuation markdowns.
• 3.Market dispersion and convexity-focused trades are recommended to hedge against underpriced AI disruption and private credit tail risks.

Table of Contents

• Executive Summary
• 1. Long/Short BDC Equity Baskets (Figure 1-2)
• 2. Long US BBBs vs. BBs (Figure 3-6)
• 3. Long/Short AT1s Baskets (Figure 7-8)
• Global Strategy
• Long GB3 vs. USOSFRC Index (Figure 9-10)
• Long HYG Index vs. BKLN Index (Figure 11-16)
• Valuation Method and Risk Statement
• Required Disclosures
• Analyst Certification
• UBS Global Research Disclaimer

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