Seizing Opportunities in European Fixed Income
European fixed income markets look set to continue to benefit from a powerful combination of supportive macro, monetary, fiscal and technical factors as we go through the latter part of 2025 and into 2026. Uncertainties around domestic politics and fiscal policy, together with geopolitics, are clearly a concern, reflected in the high number of questions we receive from investors on these areas.
Yet, while these issues could lead to volatility, we would see any short-term turbulence, especially in credit spreads, as an opportunity to add to allocations across the European fixed income universe and help deliver attractive total returns from an asset class underpinned by strong foundations.
Our basis for this constructive view includes our continued expectation for monetary policy easing, supported by modest inflationary pressures and below trend growth over the medium term. In turn, we expect this support from the European Central Bank to continue to underpin Eurozone government and public and private corporate debt markets.
Indeed, we see corporate debt markets further benefiting from substantial fiscal spending on infrastructure and defense sectors, the overall health of European company balance sheets, positive structural developments in certain markets, and technical drivers such as robust investor demand.
For example, euro fixed income strategies attracted $92 billion of $165 billion raised in active fixed income UCITs funds in the first half of the year, highlighting the depth of investor interest in euro-denominated assets.
Combined, these factors are creating a range of fixed income investment opportunities that offer portfolios differentiated risk-return profiles, as we outline below.
Government and Corporate Bonds
Despite recent volatility in French government bonds and more widely at the long end of the yield curve, we expect European rates markets overall to broadly perform over the coming months, supported by slowing inflation, continued monetary easing and a strong euro.
While we had been favouring intermediate government bond maturities, where absolute yield levels remain relatively attractive for European and U.S. dollar-based investors on a FX-hedged basis, we are now starting to see value emerge in the longer end of markets. This is especially the case in Germany.
Yields on Euro-denominated Government and Corporate Bonds Remain Attractive
Our constructive view is, however, balanced by caution over the fiscal stability of France, and other core Eurozone countries, and further volatility at the long end of the curve. Planned reform of the Dutch pension system, historically a big buyer of long-dated euro government bonds, is potentially disruptive.
On the corporate side, we believe the European investment grade-rated bond market will benefit from several factors, not least the supportive macroeconomic backdrop and overall strong credit quality of European companies, which has helped push down spreads to tight levels.
While further spread tightening from here looks limited, we continue to see opportunities to allocate to investment grade credit especially as absolute yield levels remain attractive.
Among some of the industries of interest to us, we are overweight the real estate sector—though we are increasingly selective—constructive on banks and insurers and see opportunities on select companies in the European auto industry.
Private Corporate Loans
As well as opportunities in public bonds markets, we are also seeing opportunities for institutional investors in European private loans, a $4.5 trillion market that has been growing rapidly over recent years.
The European corporate (non-sponsored) lending market is dominated by the banking sector, but increasingly alternative lenders and long-term investors, including Neuberger Berman, are stepping into the market. This has developed as capital charges have impacted banks’ lending ability, especially in longer term maturities. In turn, new lenders are providing this financing and capturing the term and liquidity premiums on offer.
These bank-sourced private loans tend to be long-term (five to 12 years) and provided to established, upper mid-market companies with stable business models and conservative financial profiles, typically positioning them at the intersection of investment grade and non-investment grade.
As such, investments in these loans tend to be higher yielding than equivalent public loans and bonds, generally offering a spread pick-up of up to 200 basis points.
Together with an attractive returns profile, the loans offer industry and geographic diversification benefits, and limited correlation to more liquid public credit markets. Investors also tend to be protected by financial and non-financial covenants, and benefit from extensive due diligence and an ECAI rating.
European Private Loans Offer An Alternative Pick-Up in Returns Over Corporate IG Bonds
These loans play an important role in financing mid to large-sized private companies across Europe, key segments of the European economy. As this market continues to grow, an allocation to the asset-class may make sense as part of a balanced fixed income portfolio.
For investors looking to diversify risk exposure and capture attractive returns, we see a range of opportunities to achieve these aims across the public and private euro-denominated fixed income asset universe, and more broadly, across different global strategies.
While the environment supporting European investment opportunities is changing, we still see macro, technical and structural factors creating a constructive backdrop for investing over the remainder of this year and into 2026.
Indeed, periods of market volatility may emerge, but we believe European fixed income valuations will hold their attractiveness over the medium term.
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