Market environment

In the United States, sovereign rates remained broadly stable, with the 2-year yield fluctuating between 3.43% and 3.58% and the 10-year yield close to 4.00%. Inflation expectations remained stable. On the macro front, September’s CPI showed annual inflation at 3%, coming in below forecasts, while core inflation eased to 3%. The Fed minutes kept an accommodative tone. The labor market is deteriorating, as evidenced by private job losses (ADP) and ISM surveys, reinforcing a wait-and-see attitude. On the political side, the outlook has darkened with the ongoing shutdown and the lack of progress on healthcare reform.

In the eurozone, German yields fell to 1.97% (2 years) and 2.63% (10 years). Sovereign spreads narrowed slightly over the month despite temporary tensions. The OAT-Bund spread widened to 87 bps amid political instability in France before narrowing back to 79 bps on October 31. The Italian spread eased by 7 bps (to 75 bps) thanks to a reassuring budget. PMIs point to a slight rebound in industry and services, and inflation remained moderate at 2.2% in September. The unemployment rate reached 6.3%.

The overall performance of the euro-denominated sovereign debt market was positive in October (+0.65%). The year-to-date performance of the overall euro-hedged sovereign debt market was positive at +1.99%.

Central banks

In the United States, the Federal Reserve cut its rate by 25 bps, as expected by the market, bringing the Fed Funds target range to 3.75%-4.00%. Jerome Powell said that a further rate cut in December was far from certain, which weighed on Treasuries. The FOMC also announced that the balance sheet reduction process (quantitative tightening), begun more than three years ago, will end in early December. The Bank of Canada lowered its interest rates by 25 basis points to 2.25%, its lowest level since July 2022. In the eurozone, the ECB kept its rates unchanged (deposit rate at 2.00%). The statement was largely unchanged, with Christine Lagarde reiterating that monetary policy was well positioned. The Bank of Japan kept its key rate unchanged at 0.50% for the sixth consecutive meeting and raised its growth forecast for fiscal year 2025 to 0.7%, up from 0.6% in July. It maintained its core inflation forecast for fiscal year 2025 at 2.8%.

Investment Grade Corporate Credit

Performance and spreads: Credit spreads narrowed on senior (-2 bps) and hybrid (-4 bps) bonds. The asset class posted a positive performance of +0.74% over the month thanks to lower rates, carry, and lower spreads.

Primary market: The primary market remained active with ~€25 billion issued and order books oversubscribed by an average of four times. Several issuers came to market with multi-tranche transactions: Air Liquide (2, 4, 7, and 12 years) for €2.9 billion, Unilever (7 and 12 years) for €1.65 billion, and Eurogrid (4 and 15 years) for €1.1 billion. In the hybrid segment, Iberdrola issued its first EuGBS bond for €1 billion. Engie issued a dual green bond tranche (NC6.5 and NC9.5) for €1 billion. Abertis, Aroundtown, and BAT also issued bonds.

Sectors: The healthcare (-4 bps), automotive (-5 bps) and retail (-5 bps) sectors are outperforming, while real estate is underperforming.

Fundamentals: October saw the publication of Q3 2025 results, which were generally positive. In the automotive sector, the results are somewhat reassuring. Stellantis reported strong sales growth while maintaining its targets for the year. Volkswagen reported results impacted by lower sales in China and the US, but above expectations, with confirmed annual guidance. Mercedes-Benz saw its results fall (EBIT: -70%), but this was still above expectations, and the group confirmed its annual forecasts. In the luxury sector, LVMH published results above expectations thanks to improved demand in China, while Kering announced the sale of its beauty business to L'Oréal for €4 billion. In terms of ratings, S&P raised Heimstaden Bostad's outlook from negative to stable, praising its financial discipline, debt reduction, and solid operating performance, while maintaining its BBB- rating.

High Yield Corporate Credit

Performance and spreads: The asset class posted a positive performance (+0.12%) in October, mainly thanks to carry. The spread widening of +7 bps was entirely offset by a fall in rates (-8 bps on the German 5-year). Spreads widened during the first 10 days of the month, reaching 313 bps on October 13, then narrowed to 277 bps. BB-rated credits outperformed, while B and CCC-rated credits remained in the red.

Primary market: The primary market slowed somewhat in October compared with previous months, with €8.8 billion in issues, mainly for refinancing purposes.

Sectors: In terms of sectors, the best performances were seen in media (Tele Columbus, Bertelsmann, Asmodee), transport (Lufthansa, Air France) and technology (Trasncom, Atos, ams OSRAM). Conversely, the chemicals sector (Kem One, Arxada, Ineos) is suffering from unfavorable global demand prospects.

Fundamentals: IPOs were the main focus in terms of news in October. Verisure has successfully completed its IPO (€13.7 billion), while Digi is preparing the IPO of its Spanish subsidiary (€2.5 billion) with a sale of 25-30% of the capital. TK Elevator is aiming for a valuation of more than €20 billion in an IPO planned for 2026 or 2027. M&A activity continues at a steady pace (Banijay-Tipico, Infopro-Eucon, Guala Closures-Metal Crowns, SNF-Syensqo), although in telecoms, Bouygues, Iliad, and Orange have had their bids for SFR rejected at this stage. In terms of ratings, Carnival has been upgraded to BBB- by Fitch, Verisure has been upgraded to Ba1 by Moody's following its IPO, and SNF has had its outlook upgraded to positive by S&P. Conversely, there have been several rating downgrades in the chemicals sector. Synthomer was downgraded to B3. In the CCC segment, Fitch downgraded Maxeda to CCC+, S&P revised Cerba's CCC+ rating outlook to negative, and Merlin Entertainments was downgraded to Caa1 by Moody's.

Financial debt

Performance and spreads: Spreads were broadly stable in the banking sector (Seniors, T2 and €AT1s at -1 bp, global AT1s at +3 bps). Spreads in the insurance sector widened slightly (Seniors at +3 bps, Subordinated at +2 bps). Monthly performance was positive: +0.6% for T2 and Senior bank bonds, +0.5% for AT1 (€AT1: +0.7%). In the insurance sector: +0.4% for Senior bonds, +0.6% for Subordinated bonds.

Primary market: The primary market saw limited activity during earnings season, but we saw several AT1 issues (Lloyds $1 billion at 6.625%, Piraeus Bank €600 million at 6.125%, VakifBank $500 million at 8.2%) and Tier 2 (Nationwide £400 million at 5.5% (10.75NC5.75), Garanti Bank $700 million at 7.625% (10.5NC5.5), DZ Bank €300 million at 3.706% (10NC5), Cajamar €750 million at MS+175 bps). In the insurance sector, BPCE Assurances launched its first dual-tranche Tier 2 “Green” issue of €400 million and an RT1 of €280 million at 5.75%. La Mondiale issued €500 million in 10-year Tier 2 at MS+180 bps. AXA issued €750 million in RT1 at 5.125% and €750 million in Tier 2 at MS+158 bps. Finally, Viridium Group issued €850 million over 10 years at 4.375%.

Fundamentals: The earnings season showed that the European banking sector remains robust, with several institutions posting significant growth in profits and returns, particularly in Iberia, Eastern Europe, and among certain large groups such as Deutsche Bank, UniCredit, and Santander. However, some French and Greek banks are experiencing declines. Overall, the trend is positive, driven by strong profitability. On the rating agency front, Moody's raised Monte's rating to Baa3, Mediobanca was downgraded (Baa3 Senior, Ba2 T2), and fifteen Spanish banks were upgraded (including Abanca by two notches). S&P raised UniCredit to A and BNP Paribas Cardif from A- to A. Fitch raised Slovenia to A+, Alpha Bank and Piraeus Bank to BBB-, assigned a positive outlook to NBG (Ethniki Trapeza) and Eurobank, and raised Resolution Life to A-.

Outlook

Market environment

• In the United States, the government shutdown took effect on October 1, suspending the release of economic data. The Fed remains divided on the need for further rate cuts, with uncertainty surrounding the December decision. Another 25 bps cut to 3.50%–3.75% still appears likely. For 2026, differing views among FOMC members raise the risk of a pause. Labor market and inflation data in the coming weeks will be key to confirming or revising the rate cut expectations currently priced in by the market.
• In the eurozone, the ECB held a meeting with no major surprises: rates remained unchanged and the tone remained broadly hawkish. Christine Lagarde, while mentioning the possibility of actively adjusting monetary policy, quickly tempered this prospect. She emphasized several points: growth has been resilient and risks have eased, but inflationary fears remain due to potential supply chain disruptions (EU/China) and wage pressure in services. Despite these comments, it is reasonable to assume that future moves will depend on the data published in the coming weeks. Even though current valuations no longer factor in a rate cut, the probability of a further cut remains high. Inflation below the ECB's target for both headline and core inflation, as well as greater concerns about growth, will be needed to shift the institution's current stance. Investors will be closely watching the ECB's updated projections at its December meeting.
• The credit market continues to show solid fundamentals. Investment flows remain strong and largely positive across all segments, reflecting sustained investor interest. Third-quarter results were generally well received, particularly in the banking sector. With the release of the latest economic statistics in the United States still pending, uncertainty persists, leading us to favor European credit.

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.