Europe

Real estate, and in particular real estate investment trusts (REITs), was one of the first sectors to come under market scrutiny as interest rates rose, but a strong return to market from Swedish real estate company Heimstaden on Tuesday was the latest sign that expected rate cuts in Europe are easing pressure on the industry.

The European Central Bank (ECB) on Wednesday published its quarterly negotiated wages indicator for Q3, and while this is only one indicator the ECB uses to determine wage inflation across the Eurozone, the growth rate of 5.4% was the highest since the early 1990s.

With most European banks having now delivered their Q3 2024 results, we believe the sector is firmly on the front foot moving into 2025.

The collapse of Germany’s ruling coalition just after the US election has left the Eurozone’s largest economy in political limbo at a difficult time.

In this month's Flash Fixed Income, we look at how bond markets are reacting to Donald Trump's victory in the US election. With Trump's stated policies widely regarded as being inflationary, we expect a bigger divergence in the path for interest rate cuts between the US and Europe that might favour higher quality European credit.

The relationship between government bond yields and swap rates – otherwise known as the swap spread – has been increasingly in focus, with the market’s attention turning to Europe last week as the 10-year German Bund yield traded higher than the 10-year euro swap rate for the first time ever.

In the past 10 days the European asset-backed securities (ABS) market has welcomed five debut issuers across multiple jurisdictions and asset classes, with the most notable being Europe’s first public solar green ABS from Enpal.

The challenges facing the German economy are well-documented, with growth remaining sluggish and Purchasing Managers' Indexes (PMIs) - a reliable indicator of future economic activity - continuing to point to ongoing struggles in the manufacturing sector.

In what has been a busy week for macro news in Europe, the latest round of data for the Eurozone delivered a surprise that could have implications for the European Central Bank’s (ECB) interest rate plans.

With elevated yields and inflation expected to come back to target, we think investors can target a level of real return that was extremely difficult to achieve in the previous cycle.

Despite higher interest rates and cost of living increases across jurisdictions, there is no sign as yet of any impact on issuance levels in European consumer ABS.

A lot has happened since our last blog about the state of affairs in the European High Yield (HY) market. At the time, the sector had just seen three of the largest capital structures of Altice France, Ardagh Group and Intrum AB announce restructuring advisors in quick succession, with growing fears that it would represent the start of a wider default trend.