In 2025, the European bond market witnessed dynamic shifts and notable trends, characterized by a decrease in EUR covered bond issuance and significant movements in senior unsecured bond supply. EUR covered bond issuance stood at €32.5 billion year-to-date (YTD), a noticeable drop from the €48 billion recorded in the same period in 2024. Despite this decline, the overall supply of covered bonds for the year is anticipated to reach €155 billion, indicating potential growth as the year progresses.
Senior unsecured bond supply in the banking sector showed a different trajectory, reaching nearly €57 billion in 2025 YTD, marking a €9 billion increase from the previous year. This surge was primarily driven by the senior bail-in segment, which reported €36 billion in issuance. However, the Yankee supply in 2025 presented a less optimistic picture, with US$8 billion for corporates and US$32 billion for financials, indicating underwhelming results compared to expectations.
In contrast, the reverse Yankee supply experienced a revival in February, with figures reaching €10 billion for corporates and €9 billion for financials. This resurgence reflects a growing interest in these instruments within the market. The total senior unsecured issuance for 2025 is projected to hit €200 billion, with an anticipated split of €90 billion and €110 billion between senior preferred and senior bail-in instruments, respectively.
Credit spreads over government bonds have been trading near the tight levels last observed in 2021. This movement is driven by the widening of Govie spreads and Bund/swap effects, elements that have significantly influenced credit market dynamics. These tight spreads suggest that credit currently appears rich and relatively less attractive when compared to Supranational, Sovereign, and Agency bonds (SSAs).
The broader economic landscape also reflects significant developments under the Trump administration's policies. President Trump's tariffs have introduced volatility across several sectors, notably affecting the auto industry. Despite these challenges, the US 10-year yield has managed to stabilize above 4.5% after experiencing a sharp decline earlier in the year.
The credit market continues to show resilience amid these fluctuations. Inflows into EUR and USD credit have remained steady, with about 1% of assets under management flowing into each market on a positive trajectory. This gradual inflow underscores investor confidence and sustained interest in these credit markets despite prevailing economic uncertainties.