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France is in the news again. Prime Minister Lecornu became the latest casualty of the French politics saga that began just over a year ago when president Macron called a surprise early election.

Tight spreads and elevated supply are often key signs that fixed income markets are overheating. Despite these all being present within the European High Yield market today, the underlying data points to a more measured backdrop characterised by the printing of high-quality new issues, improving credit fundamentals and a stubbornly supportive technical background, offering investors reassurance over the medium-term future of the asset class.

In November 2023, we estimated that holding cash, as opposed to staying invested, could cost investors 10-30% over a three-year period. At the time, we highlighted that interest rates had reached their cyclical peaks and were likely to decrease from that point.

Oracle priced an $18bn six-tranche (5yr/7yr/10yr/20yr/30yr/40yr) bond deal which was increased from an initial $15bn on the back of exceptionally strong demand. It is the latest sign that the AI investment boom, long the focus of equity markets, is now spilling into credit.

Following the end of quantitative easing in 2023, the European ABS market has gone from strength to strength and 2025 is set to overtake the post-2008 new issuance record set in 2024.

With the Fed’s stance suggesting it is prioritising growth over sticky inflation risks, volatility in longer dated bonds is likely to persist and the case for increasing duration in fixed income is not compelling.

The Federal Reserve (Fed) cut interest rates by 25 basis points (bp) on Wednesday, exactly as markets had anticipated, marking its first rate reduction since December 2024.

As active managers we are naturally looking for bonds that we believe are mispriced, therefore offering attractive risk-adjusted carry or, sometimes, a capital gain if market pricing falls into line with our view. Equally important is to avoid sectors facing structural or protracted cyclical downturns where we don’t think valuations reflect the fundamentals.

A trio of rating upgrades in European financials late last week has highlighted the strength of fundamentals in the sector. With the proportion of the subordinated financials that is rated investment grade continuing to grow, the wider pool of investors targeting these bonds could help to dampen volatility in the asset class.

Job creation, or rather a lack of it, has been in the spotlight recently as weak non-farm payrolls data in the US has driven a rally in government bonds and strengthened market projections for rate cuts.

Optimism is returning to fixed income markets, yet UK institutional investors are recalibrating their strategies amid evolving global and domestic risks, according to TwentyFour Asset Management’s Fixed Income Investor Survey 2025.

Felipe Villarroel delivered the keynote address at TwentyFour Asset Management’s Annual Conference in London on September 9, 2025.