As we approach midyear, it’s remarkable how much market volatility, social media noise and emotional ups and downs have recently defined the investment landscape. Importantly, during this period of market turbulence, European investment grade (IG) credit has stood out for its stability and robust fundamentals, not to mention diversification opportunities.
Why does the asset class continue to exhibit such positive characteristics? Here are a few reasons.
Solid Fundamentals. Investment grade bonds are often favored in portfolios geared toward capital preservation, income and low volatility. European IG, specifically, spans multiple sectors and countries, offering breadth and depth that facilitate reduced concentration. Corporate fundamentals remain solid with financial policies that are conservative but opportunistic as companies navigate a rapidly changing policy environment.
Elevated Yields. Yields in European IG credit are far above those provided over much of the past decade, adding to the appeal for investors. The European Central Bank’s recent rate cuts have created a more supportive backdrop for duration exposure and credit spreads.
European IG Credit Yields Remain Elevated
Yield to Worst: Bloomberg Euro Aggregate Corporate Total Return Index
Source: Bloomberg. Data through June 10, 2025.
Technical Support. Demand has increased from pension funds, insurers, fixed maturity portfolio managers and liability-driven investors. The inflows into the asset class have reinforced technical support from investors looking for returns and income with limited added risk.
Investors Flock to European IG Credit
Cumulative Fund Flows (Last Six Months)
Source: Goldman Sachs research and EPFR. Data through June 5, 2025.
More Issuance Expands Active Opportunity. This year, European IG bond issuance has increased significantly, creating an ideal environment for active portfolio managers.
Issuance Remains on the Fast Track
European IG Non-Financials Cumulative Issuance (€ Billions)
Source: Bond Radar, Bloomberg, Morgan Stanley Research. Data through May 31, 2025.
Interestingly, investors have been eager to participate in new primary deals even when the traditional new issue premium (the additional yield or spread offered on a newly issued bond to compensate investors for uncertainties or risks) is absent. We have also seen increased “reverse Yankee” deals, in which U.S.-based entities issue debt in euros. As of early June, €48 billion of such bonds have come to market from U.S. corporates and €31 billion from U.S. financial institutions, accounting for 21% of total European IG issuance in 2025, up 17% year-over-year and potentially on track for a new annual record.
More to Come?
With all the positives we perceive, there are some risks. Rising political tensions and fiscal concerns could weaken Europe’s economic growth, straining corporate earnings and challenging companies’ ability to maintain the strong credit metrics mentioned above. Cyclical sectors remain particularly vulnerable to dampened consumer sentiment.
That said, still-robust fundamentals, attractive yields and strong technical support driven by significant investor demand have helped the European IG market demonstrate resilience. The surge in primary issuance, persistent oversubscription—even in the absence of new issue premiums—and the notable rise in reverse Yankee deals all underscore the strength and dynamism of this market. As central bank policy turns more accommodative and investors continue to seek stability and income, we believe European IG credit remains well positioned to deliver value and diversification for portfolios in the months ahead.
