Credit markets dented as Middle East war piles onto 'cockroaches' fears

• The iTRAXX Europe Crossover index surged nearly 11 basis points to around 270 bps, while investment-grade credit costs rose to their highest since mid-October
• Major European bank stocks including HSBC, Santander, and Deutsche Bank fell 4-5% amid concerns about their exposure to non-bank financial institutions through private credit lending
• U.S. corporate credit spreads also widened, with the ICE BofA U.S. Corporate Index reaching 118 bps and the High Yield Index hitting 312 bps, both at their highest levels since late November

Credit Markets Deteriorate on Middle East Conflict and Private Credit Concerns

European credit markets weakened significantly on Monday, March 2, 2026, as escalating Middle East tensions and private credit market fragility rattled investors.

Key Developments

The iTRAXX Europe Crossover index, measuring default insurance costs on high-yield corporate debt, surged nearly 11 basis points to approximately 270 bps—the highest since November. The investment-grade iTRAXX Europe Main index rose 1.5 bps to around 57 bps, also reaching mid-October levels.

The conflict expanded as Israel responded to Hezbollah strikes in Lebanon while Iran launched missiles and drones at Israel, Gulf states, and a British air base in Cyprus. This geopolitical shock triggered broad risk-off sentiment across credit, equities, and cryptocurrencies.

Market Impact

Major European banks suffered sharp declines, with HSBC, Banco Santander, and Deutsche Bank falling 4-5%. In the U.S., the ICE BofA Corporate Index hit 118 bps at Friday's close—the highest since late November and up from a four-year low of 100 bps. The ICE U.S. High Yield Index reached 312 bps.

Private Credit Concerns

A collapsed British mortgage financing company amplified existing worries about private credit exposure. Analysts highlighted that much recent borrowing occurred through private credit markets, which are less transparent and liquid than public markets, making them vulnerable during financial shocks. JPMorgan CEO Jamie Dimon previously warned about potential "cockroaches" emerging from Wall Street's multitrillion-dollar credit machinery.

Analysts noted elevated tail risks from the Strait of Hormuz supply concentration and potential oil price spikes driving global inflation concerns.