We are increasingly confident that around €600bn of assets will transition on 1 January 2026, bringing about significant flows in longer-dated bonds and swaps. Markets are closely watching, with 10s30s steepening on headlines. Credit should benefit from the transition, with most flow funds only coming in in after 1 Januarya
Risk sentiment remains resilient and largely unaffected by factors such as French politics. While this should support EUR rates grinding higher and spreads – outside of France – still tighter, plenty of risks are looming. US rates are another directional driver, and today US data is in focus ahead of Wednesday's Fed decision
While simmering trade tensions have been a key driver of FX markets this year, optimism about a potential ceasefire deal in Ukraine and stronger fiscal support, especially from defense spending, have also raised the prospects of a better outcome for European growth.
