Fixed Income

Credit markets have been remarkably resilient in the face of significant geopolitical and macroeconomic volatility in recent weeks.

With tensions in the Strait of Hormuz increasing over the weekend and markets getting used to oil prices well in excess of $100 per barrel, this seems an opportune moment to zoom out and look at the state of play in fixed income markets, considering the unsettling reality of a longer-than-expected conflict in the Middle East.

Last week, European regulators took another step in their long journey towards a single European banking regime, otherwise known as “banking union”.

European high yield (HY) credit, which had proved resilient to start 2026 despite growing concerns over AI risks, came under pressure in March as the Iran war disrupted global trade and weighed heavily on risk appetite.

With no end in sight to the US-Israeli war with Iran, and tensions escalating once again over the weekend, investors are bracing for more volatility. Inflation fears have ramped up significantly, reflected clearly in government bond markets where rising yields show rate cuts being priced out and rate hikes increasingly being priced in.

Data published by the Bank of England (BoE) on Friday shows an interesting trend in consumers’ approach to interest rates.

Despite the oil price hanging on every word from the White House and volatility in everything from equities to government bonds, we saw a record day for US corporate bond supply on Tuesday led by a blockbuster deal from Amazon.

Collateralised Loan Obligation (CLO) markets have repriced meaningfully over the past few weeks, with a sell-off in software-related loans leading to even more spread “tiering” as investors differentiate between managers with lower exposure to stressed sectors and those carrying more tail risk.

As the US-Israeli military operation in Iran enters its fourth day, markets are continuing to react to rhetoric from both sides and attempting to gauge how long the conflict may last and what the impact will be on the local and global economies.

We have had an eventful few weeks of AI-driven volatility in markets, with markets seemingly swinging from “everyone’s a winner” to “everyone’s a loser” faster than technological progress itself.

With most European banks having now reported their full-year 2025 results, we see the sector carrying solid momentum into 2026.

Issuers in corporate credit have started this year on the front foot, capitalising on the current supportive market conditions and front loading their funding plans in anticipation of higher funding needs from the hyperscalers in the US, among other factors.