Fixed Income Newsletter - February 2026

Market Environment

With major central banks largely on pause, January was defined by a wave of new issuance and a rise in Japanese interest rates.

In Japan, the government’s decision to dissolve parliament (triggering early legislative elections in early February), combined with the prime minister’s plan to temporarily scrap taxes on food products, pushed the yield curve higher. The 10‑year JGB yield rose 19 bps to 2.25%.

This move also affected other markets. In the United States, government bond yields rebounded and the curve steepened slightly. The 2‑year yield increased by 5 bps to 3.52%, while the 10‑year yield climbed 7 bps to 4.24%. Third‑quarter 2025 growth data confirmed the strength of household consumption. Business surveys signaled solid activity in December (ISM) and January (PMI). Jerome Powell described an economy that remains resilient and a labor market that appears to have stopped weakening.

In the United Kingdom, rates also edged higher following activity surveys showing a sharp rebound, especially in services. Political risk resurfaced as well, putting pressure on long‑dated maturities.

In the Eurozone, German sovereign yields eased slightly and spreads tightened. The rebound of the euro, particularly against the dollar, helped short positions outperform, and the prospect of a budget vote in France supported the relative performance of French government bonds. S&P revised its outlook on Italian debt from stable to positive while confirming its BBB+ rating. The agency highlighted expectations of a positive current account balance and strong deficit improvement, which could fall back below 3%. The debt-to-GDP ratio is expected to remain high in the short term but to start decline from 2028 onwards.

The overall sovereign debt market posted a slightly negative performance in January (-0.09% in euros). The performance of US bonds hedged in euros was negative (-0.23%), while the European market delivered a positive performance of +0.69%. The 10-year OAT-Bund and BTP-Bund spreads widened by 13 bps and 8 bps, respectively. 

Corporate Investment Grade

Performance and spreads: Credit spreads narrowed across the full capital structure (senior: -6 bps, hybrids: -9 bps) as interest rates eased slightly. The asset class posted a positive performance of +0.8% over the month, supported by favorable contributions from spreads, carry and rates.

Primary market: Primary activity remained strong, with around €41 billion of issuance, up +28% versus January 2025. IBM launched the year’s first Reverse Yankee transaction, raising €3.5 billion, reinforcing expectations of another active year for US issuers – particularly tech companies with significant financing needs linked to AI and data‑center investments. The automotive sector was also active, including BMW’s €2.3 billion issue. The hybrid market also saw strong activity, with approximately €4 billion issued in January, including Enel’s issue for €2 billion. Demand was robust, with order books oversubscribed by an average of 3.7x.

Sectors: Automotive, basic industry, and real estate outperformed, while retail and media lagged.

Fundamentals: The earnings season is under way, and initial results have been broadly solid. Notably, Meta reported strong figures and plans to nearly double its capital expenditure by 2026 (to $135 billion), which may result in sizeable bond issuance in dollars and potentially euros. On the rating front, Fitch downgraded SES by one notch to BBB‑ with a stable outlook, while S&P upgraded EDF to BBB+ with a stable outlook too (from BBB/positive), reflecting the company’s strong operating performance since mid‑2023.

Corporate High Yield

Performance and spreads: Credit spreads narrowed across the full capital structure (senior: -6 bps, hybrids: -9 bps) as interest rates eased slightly. The asset class posted a positive performance of +0.8% over the month, supported by favorable contributions from spreads, carry and rates.

Primary market: Primary activity remained strong, with around €41 billion of issuance, up +28% versus January 2025. IBM launched the year’s first Reverse Yankee transaction, raising €3.5 billion, reinforcing expectations of another active year for US issuers – particularly tech companies with significant financing needs linked to AI and data‑center investments. The automotive sector was also active, including BMW’s €2.3 billion issue. The hybrid market also saw strong activity, with approximately €4 billion issued in January, including Enel’s issue for €2 billion. Demand was robust, with order books oversubscribed by an average of 3.7x.

Sectors: Automotive, basic industry, and real estate outperformed, while retail and media lagged.

Fundamentals: The earnings season is under way, and initial results have been broadly solid. Notably, Meta reported strong figures and plans to nearly double its capital expenditure by 2026 (to $135 billion), which may result in sizeable bond issuance in dollars and potentially euros. On the rating front, Fitch downgraded SES by one notch to BBB‑ with a stable outlook, while S&P upgraded EDF to BBB+ with a stable outlook too (from BBB/positive), reflecting the company’s strong operating performance since mid‑2023.

Financial Debt

Performance and spreads: Spreads narrowed in the banking sector: Seniors at -5 bps, Tier 2s at -7 bps, AT1s at -19 bps, and €AT1s at -21 bps in January. In the insurance sector, Seniors ended at -4 bps and Subordinated bonds at -6 bps. In terms of performance, Senior banking securities posted +0.7%, Tier 2s +0.9% and AT1s +1.0% (€AT1s : +1.5%). Senior insurance bonds ended the month at +0.7% and Subordinated bonds at +1.3%.

Primary market: The primary market remained very active in January ahead of the earnings season. In Europe, subordinated issuance reached €16.9 billion. Euro‑denominated Tier 2 supply was busy, with deals from Banka IFIS, Bank of Ireland, Bayerische Landesbank, BPCE, Commerzbank, Crelan, Deutsche Bank, Erste and Eurobank, while sterling issuance included Close Brothers, Crédit Agricole and Investec. In AT1, Société Générale and UBS came to market in dollars; Raiffeisen and UniCredit issued in euros; Paragon in sterling; and Bank Millennium in zloty. Within insurance, two names issued bonds for the first time: Bermudian insurer Convex and mutual insurer CARAC. Groupama and Unipol also issued RT1s in euros.

Fundamentals: The earnings season began at the end of the month. In the US, JP Morgan reported solid results, though slightly lower year‑on‑year (-2% to $57 billion). Citi delivered a sharp improvement (net income +13% Y/Y to $14.3 billion), and Wells Fargo posted an 8% Y/Y increase in net income. In Europe, several banks reported record earnings: Caixabank (€5.9 billion, +2% Y/Y), Abanca (€902 million, +5.8% Y/Y), Deutsche Bank (€6.1 billion, +104% Y/Y), Landsbankinn (€262 million) and Bankinter (€1.09 billion, +14% Y/Y). Raiffeisen recorded a strong rise in adjusted earnings (€1.44 billion excluding Russia, +48% Y/Y), Lloyds delivered a 6% Y/Y increase in net profit, while ING reported broadly stable results with net income of €6.3 billion (-1% Y/Y). On the ratings front, Fitch upgraded UniCaja and Abanca to BBB+ with a stable outlook.

Outlook

Market Environment

•    Economic data releases will be crucial in the coming weeks in setting the direction for fixed income markets. Economic data releases will be crucial in the coming weeks in setting the direction for bond markets. In 2026, US growth is expected to exceed 2%, helped by fiscal support, personal consumption, and investment in the tech sector. Moderating labor market conditions will likely be scrutinized to justify further rate cuts by the Federal Reserve. The behavior of the dollar will be key for the US bond market and other markets, particularly in the eurozone. The European economy is expected to grow close to its potential in 2026, reinforcing the ECB's current stance. Tariffs have not yet shown a meaningful effect on growth, which is supported by continued resilient consumption and a recovery in investment. Inflation dynamics in the first half of the year will be key, as will currency valuation.

•    Japan will remain in the spotlight. First and foremost, on the domestic market, with a policy mix following the elections. Inflation remains high, and the prospects for recovery will encourage the BoJ to continue normalization. With the gradual rise in yields on the long end of the curve, the "re-domestication" of investments by Japanese institutional investors will be closely scrutinized.

•    Credit market fundamentals remain strong, with default rates expected to decline in 2026. Supply on the primary market was very well absorbed in January by continued strong demand. Despite geopolitical uncertainties and threats of tariffs, credit spreads have proven resilient. In this context, we remain constructive on the various segments of the bond market. The fourth-quarter earnings season will be the next market catalyst for investors.

Positioning

•    Duration/Rates: UK (+), US (=/+), Euro (=/+), Japan (=/+)

•    Credit: Moderately constructive on investment grade credit, euro high yield and subordinated debt.

•    Maturity: Preference for short to intermediate maturities.

•    Sectors: Banks, telecoms, healthcare, real estate.

Disclaimer

Document completed on February 4, 2026.

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