(Bloomberg) -- European corporate bond spreads will widen massively if Russia shuts off gas supplies, according to strategists at JPMorgan Chase & Co. 

The moves would be bigger than the first wave of the Covid pandemic in 2020, they wrote in a note that laid out market predictions for a worst-case scenario. Funding would likely only be available on stricter terms and at a higher cost, wrote strategists led by Matthew Bailey. However, they cautioned that the situation isn’t likely to be as severe as the 2008 financial crisis because banks have plenty of cash available. 

“Existing creditors may end up effectively subordinated if new lending is secured, but these are only marginal concerns if it allows companies to continue to access funding,” they wrote in a report dated July 1. 

If Russia completely shuts off gas exports to Europe, the yield on high-grade debt may surge to 325 basis points above the benchmark, the strategists said. Currently, the bonds are trading at a spread of 225 basis points, according to a Bloomberg index. 

Junk-rated debt could widen to as much as 1,000 basis points, JPMorgan said. That compares with the spread on a similar Bloomberg index of 699 basis points and a pandemic peak of 957 basis points.

“The economic impact would be substantial, and – in contrast to the pandemic – we think that there would be relatively less support from either governments, which have limited fiscal headroom and so are likely to focus on cushioning the impact on households or central banks which are trying to prevent inflation from running out of control,” they wrote. 

The threat of Russia slashing natural gas supplies is ringing alarm bells across Europe. Germany’s economy could contract by 12.7% in the remainder of this year should Russia fully turn off natural gas supplies, according to a recent report by the Bavarian Industry Association, whose members include BMW AG and Deutsche Telekom AG.

Other strategists have also started to give predictions for other markets if the gas crunch worsens. JPMorgan analysts including Natasha Kaneva said global oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts. 

Nomura International Plc strategist Jordan Rochester has told investors to short the euro and expects the currency to fall to $1.00 by the end of August because of Europe’s looming energy crisis. 

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