Europe

Last week marked another record-breaking year for the securitisation industry as over 5,500 market participants gathered in Barcelona for the annual Global ABS conference, surpassing last year’s attendance and reflecting the growing momentum across both public asset-backed securities (ABS) and private asset-backed finance (ABF) markets.

The European high yield (HY) default rate spiked higher in May with the largest monthly default volume on record (€6bn).

The European Central Bank (ECB) will be alone this week in delivering its latest monetary policy decision, with the next Federal Reserve, Bank of England and Bank of Japan meetings not until the week commencing June 16.

Monday was a somewhat eventful day for markets with several headlines in the US and Europe. Risk assets did not necessarily reflect the eventfulness of the day, finishing virtually unchanged, while rates had a volatile day that ultimately produced a sizeable rally.

European banks are coming to the end of the Q1 2025 reporting season, and on the surface there are multiple headwinds to contend with.

With much fanfare, President Trump and Prime Minister Starmer announced a “historic” trade deal between the US and UK on Thursday. The main points for the UK are a reduction in auto tariffs from 27.5% to 10% for the first 100,000 cars that enter the US, and the removal of steel and aluminium tariffs.

April was one of the most volatile months across financial markets in recent memory, triggered by President Trump’s sweeping tariff announcement on April 2.

The high yield bond market reopened in Europe last week after a three-week hiatus triggered by the US tariffs fallout. Aside from a private placement by Very Group on April 10, the last public European high yield deal was from UK homebuilder Miller Homes on March 31, so we were interested to see how the first post-tariffs deal would be received.

With a week currently feeling like a long time in geopolitics, the European sovereign crisis at the beginning of the last decade feels even more like a distant memory. The road to recovery for Europe’s periphery economies has been long and windy, but post-Covid it has been surprisingly smooth.

Markets settled down last week thanks to the absence of headlines around tariffs. There is a universal acceptance that uncertainty and volatility will remain, though a series of constructive data prints relating to inflation and labour markets have now been navigated, and investors are shifting their focus to how central banks will weigh up the growth and inflationary impact of tariffs at the next round of meetings.

Last week was one of the most volatile on record. President Trump's announcement of a 90-day pause in reciprocal tariffs for every country bar China sparked one of the largest rallies in equity indices in recent history.

With the market focus over the last week or so being firmly on equities and credit spreads, it is worth zooming in on developments in the European bank credit default swap (CDS) market.