The TwentyFour Blog

France is in the news again. Prime Minister Lecornu became the latest casualty of the French politics saga that began just over a year ago when president Macron called a surprise early election.

Tight spreads and elevated supply are often key signs that fixed income markets are overheating. Despite these all being present within the European High Yield market today, the underlying data points to a more measured backdrop characterised by the printing of high-quality new issues, improving credit fundamentals and a stubbornly supportive technical background, offering investors reassurance over the medium-term future of the asset class.

Oracle priced an $18bn six-tranche (5yr/7yr/10yr/20yr/30yr/40yr) bond deal which was increased from an initial $15bn on the back of exceptionally strong demand. It is the latest sign that the AI investment boom, long the focus of equity markets, is now spilling into credit.

Following the end of quantitative easing in 2023, the European ABS market has gone from strength to strength and 2025 is set to overtake the post-2008 new issuance record set in 2024.

The Federal Reserve (Fed) cut interest rates by 25 basis points (bp) on Wednesday, exactly as markets had anticipated, marking its first rate reduction since December 2024.

As active managers we are naturally looking for bonds that we believe are mispriced, therefore offering attractive risk-adjusted carry or, sometimes, a capital gain if market pricing falls into line with our view. Equally important is to avoid sectors facing structural or protracted cyclical downturns where we don’t think valuations reflect the fundamentals.

A trio of rating upgrades in European financials late last week has highlighted the strength of fundamentals in the sector. With the proportion of the subordinated financials that is rated investment grade continuing to grow, the wider pool of investors targeting these bonds could help to dampen volatility in the asset class.

Job creation, or rather a lack of it, has been in the spotlight recently as weak non-farm payrolls data in the US has driven a rally in government bonds and strengthened market projections for rate cuts.

The next few days could be pivotal to any concerns around the independence of the US Federal Reserve (Fed).