Appealing fundamentals, elevated yields and active management opportunities are drawing investors to European investment grade credit.
Source: Goldman Sachs research and EFPR. Data through June 5, 2025.
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.
- 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.
- 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.
- Attractive Yields. Yields in European IG credit are far above those provided over much of the past decade, adding to the appeal for investors. The yield to worst of the Bloomberg Euro Aggregate Index (Euro) has ranged between 3.11% and 2.70% year to date (as of 4th July 2025). The European Central Bank’s recent rate cuts have created a more supportive backdrop for duration exposure and credit spreads.
- More Issuance Expands Active Opportunity. This year, European IG bond issuance has increased significantly, creating an ideal environment for active portfolio managers. 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.
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.
