Market Environment
In the United States, sovereign rates remained broadly stable in November, with the 2-year yield ranging between 3.45% and 3.60% and the 10-year yield between 3.96% and 4.16%. Economic data was mixed: job creation exceeded expectations, yet the unemployment rate rose to 4.4%. The Federal Reserve maintained a cautious stance on potential rate cuts, while markets anticipate a new 25bps rate cut by early 2026.
In the Eurozone, German government bond yields saw little change over the month. Long-term rates showed an upward trend. The OAT‑Bund and BTP‑Bund spreads narrowed to 71 bps and 70 bps, respectively. Major rating agencies confirmed the credit rating of Germany, France, and Spain. Belgium’s fiscal consolidation measures were positively received by investors.
In the United Kingdom, yields were volatile in November, with the 10‑year fluctuating between 4.36% and 4.61%. The government announced taxes and tax increases that are expected to raise around £26 billion per year by 2029 and £30 billion over the period 2030-2035. These measures will allow the BoE to continue its gradual rate cuts. The Bank of England kept its rates unchanged at 4%: Governor Andrew Bailey said he wanted to observe the future effects of fiscal policy and wait for signals confirming the slowdown in inflation. These statements leave the door open for a future cut by the end of the year.
In Japan, yields rose following the announcement of a fiscal stimulus package worth nearly ¥17.7 trillion (just under €100 billion), including tax cuts and additional spending. Late in November, the Bank of Japan’s governor signaled that a rate hike was possible. The 10‑year JGB ended the month at 1.81%, up 16 bps.
In Australia, the RBA kept its key rate at 3.60%. Its members have become more cautious about further rate cuts.
The overall performance of the euro sovereign debt market was negative in November (-0.10%), but remains positive since the beginning of the year (+1.90%).
Corporate Investment Grade
Performance and spreads: Credit spreads widened slightly in November (senior and hybrid IG debt: +4 bps). The segment delivered a monthly performance of ‑0.29%, weighed down by both rates and spreads despite the positive carry.
Primary market: Primary issuance was exceptionally strong, totaling around €68 billion — the second‑highest monthly volume this year and one of the best Novembers on record. Reverse Yankees were particularly active, led by Alphabet's jumbo €6.5 billion deal. Novo Nordisk issued €2.6 billion to finance its acquisition of Akero. Magnum Ice Cream Company (a spin-off from Unilever) came to market with a €3 billion issue in four tranches (3 to 12 years). Canal+ launched a 5-year inaugural issue for €700 million, which was oversubscribed 6.7x. Several companies issued hybrid bonds (EDP, Merck KG&A, Repsol, Verizon) for a total of around €7 billion. This abundant supply was well absorbed, with order books oversubscribed by an average of 3.2x. Since the beginning of the year, primary activity in the Corporate IG asset class has amounted to around €430 billion, up +18% compared to 2024 and slightly above the record levels of 2020 (€426 billion).
Sectors: Healthcare (+7bps), basic industry (+5bps) and consumer goods (+5bps) are underperforming. Conversely, automotive (+1bp) and real estate (+2bps) are outperforming.
Fundamentals: Regarding ratings, S&P raised Kering's (BBB+) outlook from negative to stable. Moody's upgraded Italy's sovereign rating from Baa3/positive to Baa2/stable, leading to a one-notch upgrade for Aeroporti di Roma, Eni and Terna. On the M&A front, Orange announced the acquisition of Masorange and Akzo Nobel is exploring a merger with Axalta Coating Systems.
Corporate High Yield
Performance and spreads: High yield bonds posted positive performance (+0.16%) despite high volatility during the month. Spreads initially widened by 18 bps, but thanks to reassuring earnings reports and a decline in volatility on US equity markets, spreads returned to their level at the beginning of the month (276 bps). The lowest-rated securities performed best.
Primary market: The primary market remained active with a volume of €9 billion, mainly for refinancing purposes.
Sectors: The automotive sector benefited from both favorable sales statistics in the EU and strong earnings reports. Retail and consumer goods also outperformed. Conversely, leisure was penalized by higher taxes on online gaming in the United Kingdom. Transportation and energy also posted negative performances.
Fundamentals: The automotive sector has seen many M&A announcements (Renault, Schaeffler, Forvia, Nissan, Antolin). In the telecom sector, Altice has been making headlines, particularly regarding SFR, with reports that the Bouygues-Iliad-Orange consortium is preparing a new €23 billion takeover offer. Eutelsat has refinanced its syndicated debt and raised €828 million and €670 million in two capital increases, strengthening its balance sheet ahead of future bond refinancing. Several companies are continuing their efforts to reduce debt and prepare for refinancing (Zegona, Celanese, ASDA, ELO, Ardagh Group, Foncia, which raised €700-800 million in preferred equity ahead of its 2028 maturities, and Grifols, which is considering early refinancing). Regarding credit ratings, Eroski was upgraded to B1 by Moody's, Takko to B by S&P and TUI Cruises to BB by Fitch and Ba2 by Moody's. Celanese was downgraded to BB by Fitch and Ba2 by Moody's, Synthos to Ba3 by Moody's, and Nissan to BB- by S&P.
Financial Debt
Performance and spreads: Spreads widened in the banking sector: +4 bps for Seniors and Tierr2, +10 bps for AT1s (€AT1s: +13 bps). In the insurance sector, Seniors ended at +7 bps and Subordinated at +3 bps. In terms of performance, Senior banking bonds were down 0.1%, Tierr2 bonds were flat, and AT1 bonds were up 0.1% (€AT1: down 0.1%). Senior insurance bonds closed the month down 0.3%, while subordinated bonds finished flat.
Primary market: The primary market for subordinated debt was active, with around €12 billion in issues. There were several AT1 issues, one in dollars (Standard Chartered) and the rest in euros (Barclays, BPER, NLB, Banca Transylvania, Banca CF+, Deutsche Bank). BFCM, Nordea, Banka Pekao, and AIB issued Tier 2 debt in euros. On the insurance side, Bupa issued a bullet Tier 2 in sterling, and we saw three RT1 issues: Tryg, Resolution Life and Rothesay.
Fundamentals: European banks delivered strong Q3 results, with several reporting record net profits and robust profitability. In Spain, Caixa Geral de Depositos posted a record net profit of €1.4 billion (+2% Y/Y) and Cajamar posted a historic record with profits up +7% Y/Y. In Greece, National Bank of Greece achieved €970 million in net profit. In Italy, BPER posted record net profit of €1.5 billion and Monte dei Paschi grew 18% to €1.4 billion. The insurance sector performed well overall, with growth in premiums and profits: Hannover Re (+7% Y/Y), Munich Re (+11.9% Y/Y), Allianz (+10.5% Y/Y), Talanx (+23% Y/Y) and Generali (+14% Y/Y to €3.2 billion). In terms of ratings, S&P reassessed the default risks of certain European banks' capital instruments, leading to several upgrades in AT1 and Tier 2 ratings for banks such as Barclays, Lloyds, Natwest, Standard Chartered and UBS. Finally, after Moody's upgraded Italy's rating (from Baa3 to Baa2), most Italian financial institutions saw a one-notch improvement across their entire capital structure.
Outlook
Market environment
- In the United States, the government shutdown has been resolved until early 2026, and economic data releases are gradually resuming. Despite recent disruptions, growth remains resilient, although labor market indicators are sending mixed signals. Job market trends will be a key factor in shaping the Federal Reserve’s next moves, especially given the current divergence of views among its members. As a result, uncertainty is likely to persist in the weeks ahead.
- In the Eurozone, inflation risks appear balanced, while growth data continues to provide reassuring signals, suggesting no immediate need for rate cuts from the ECB. That said, the central bank will closely monitor any significant deviation from inflation expectations and stands ready to adjust policy if required. Investors’ attention will largely turn to government debt issuance dynamics for 2026, underscored by the Bundestag’s approval of Germany’s 2026 budget, which is expected to boost bond supply by nearly €180 billion.
- The credit market continues to enjoy robust fundamentals and buoyant investment flows, both in Investment Grade and High Yield. This trend reflects strong investor appetite across all segments, bolstered by generally positive quarterly results. Credit spreads are already close to historic lows, reducing the likelihood of further significant tightening. On the other hand, current rates still offer attractive yields for investors, particularly in a carry context.
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.
