Fixed Income

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.

Oracle returned to the bond market yesterday, just five months after its $18 billion September jumbo deal, finally removing the cloud of uncertainty around supply that has hung over the credit.

Foreign exchange markets have taken centre stage again in recent weeks. President Trump’s apparent indifference to the relatively steep dollar depreciation trend of late has raised a few eyebrows and added fuel to the dollar fire.

One of the many unusual developments in financial markets last year was the decoupling between German Bunds and other safe haven G7 government bonds, most notably US Treasuries. Since the inception of the euro, it’s been quite a rare event that Bunds and Treasuries move in opposite directions for sustained periods of time.

2026 has started with a wave of hybrid issuance, with names like Enel and Telefonica leading the charge in a busy primary market. On 12 January, with markets firmly open despite geopolitical headlines, Telefonica proactively managed its outstanding hybrid maturities by announcing a tender offer for its three shortest outstanding hybrids, alongside the issuance of two new euro-denominated green hybrid bonds.