Europe

Last week, European regulators took another step in their long journey towards a single European banking regime, otherwise known as “banking union”.

Corporate hybrid issuance is on track for a record year in both Europe and the US, driven by expanding supply well beyond the traditional utilities, energy, and telecoms issuers.

Collateralised Loan Obligation (CLO) markets have repriced meaningfully over the past few weeks, with a sell-off in software-related loans leading to even more spread “tiering” as investors differentiate between managers with lower exposure to stressed sectors and those carrying more tail risk.

With most European banks having now reported their full-year 2025 results, we see the sector carrying solid momentum into 2026.

Issuers in corporate credit have started this year on the front foot, capitalising on the current supportive market conditions and front loading their funding plans in anticipation of higher funding needs from the hyperscalers in the US, among other factors.

2026 is already shaping up to be another volatile year for geopolitics, economies and markets. But one pocket stands out as a key beneficiary of the present backdrop.

One of the many unusual developments in financial markets last year was the decoupling between German Bunds and other safe haven G7 government bonds, most notably US Treasuries. Since the inception of the euro, it’s been quite a rare event that Bunds and Treasuries move in opposite directions for sustained periods of time.

With spreads well below long term averages and government bond curves pricing in what central banks are likely to do in the next few quarters, opportunities for capital gains through spread compression or sustained rallies in government bonds appear to be limited.

October brought the first serious bout of volatility in corporate bond markets for some time, with two high-profile US bankruptcies raising fears of a more systemic issue in credit.

Amid tariffs, bankruptcies, and uncertainty, credit fundamentals remain strong. Elevated yields and solid corporate balance sheets favour income-focused fixed income strategies over government bonds, even as volatility persists.

The Net Zero Banking Alliance (NZBA) has formally ceased operations as a member-based organisation, following a vote by its remaining members. This marks the end of what we believe is one of the most significant collective efforts to align global banking with the goal of net zero emissions by 2050.

France’s chronic government paralysis repeatedly created headlines this month, and fixed income markets are rightly worried about the sustainability of French government borrowing levels. Meanwhile, forecasts of a £50bn blackhole in the UK’s public finances are keeping gilt yields elevated and have made this November’s UK Budget a potential flashpoint.