European High-Yield Market Surge: Record Issuance and US Outflows
In June, the European high-yield (junk bond) market shattered records, with issuance climbing to €23 billion — surpassing the previous high set in June 2021 by around €5 billion. The number of deals also reached an all-time record at 44, according to PitchBook. This sharp increase reflects a significant investor shift away from US credit markets due to rising fears over President Trump’s erratic trade policies and surging US borrowing needs.
Many investors, spooked by the unpredictability of US tariff measures and ballooning fiscal deficits, have sought relative stability and yield in European credit. The dollar’s slide to its weakest start in more than 50 years has further accelerated the move. European high-yield bond funds have seen seven consecutive weeks of inflows, per Bank of America data, highlighting this shift.
Falling Borrowing Costs and Issuer Revival
Amid the influx of capital, borrowing costs for risky European corporates have dropped sharply. High-yield spreads over government bonds fell from more than 4 percentage points in April to 3.1 percentage points by end-June (ICE BofA data). Companies previously shut out of the market — including CCC-rated issuers — have seized this window.
Flora (a KKR-owned plant-based spread producer) successfully issued €400 million in bonds at 8.625%, roughly 4 percentage points below comparable past debt. Czechoslovak Group issued five-year euro and dollar bonds at 5.25% and 6.5%, significantly lower than its last 11% private credit deal. Even Carnival, the cruise operator historically forced to borrow at double-digit rates, tapped markets with €1 billion of bonds at just 4.125% to refinance dollar debt.
The surge illustrates investor appetite for yield amid declining US bond market appeal. It also reflects a "risk-on" environment, with managers eager to deploy cash before spreads tighten further. As one investor noted, “The market is running red hot,” signaling both opportunity and potential for overheating risks if economic conditions shift abruptly.
UK Gilt Market Turbulence Amid Political Instability
In the UK, gilts (government bonds) saw sharp sell-offs as political turmoil erupted over fiscal policy. Chancellor Rachel Reeves' emotional House of Commons appearance, combined with Prime Minister Starmer’s failure to back her publicly, deepened concerns over fiscal discipline.
The yield on 10-year gilts surged by 0.16 percentage points to 4.61% — the largest one-day jump since April's bond rout. The pound slid 1.2% against the dollar. Investors now question whether fiscal rules will be maintained, especially after a £5 billion welfare reform U-turn blew a hole in budget plans.
Market fears center on the possibility of rising deficits and increased borrowing costs, which could feed into longer-term inflation expectations. This uncertainty underscores the importance of policy credibility and communication in maintaining investor confidence.
UK Trade Frictions: PEM Blockage
In trade, the UK’s bid to join the Pan-Euro-Mediterranean (PEM) convention to help exporters simplify supply chains post-Brexit has been blocked by Brussels. EU officials worry the move could allow UK goods unfair tariff access into the EU.
This development underlines ongoing post-Brexit friction despite recent attempts to "reset" relations. UK exporters, especially in manufacturing and automotive sectors, will continue facing higher costs and administrative burdens, reducing competitiveness against EU-based producers.
Security Risks: Oil Tanker Attacks Raise Tensions
A spate of limpet mine attacks on oil tankers in the Mediterranean and Baltic Sea this year has unnerved global shipping and energy markets. Recent explosions on vessels linked to Russian and Libyan ports — including last week’s attack on the Greek-owned Vilamoura — suggest sophisticated sabotage campaigns, with Ukraine among the suspected actors.
These incidents highlight vulnerabilities in global oil supply chains, potentially pressuring insurance costs and freight rates. For energy markets already sensitive to Middle Eastern conflict, this raises additional geopolitical risk premia.
Vietnam-US Trade Agreement: A Mixed Signal
Vietnam has agreed to a 20% baseline tariff on exports to the US, significantly reduced from an initial 46% but still above pre-2024 levels. The agreement, struck during a direct call between Trump and Vietnam’s Communist Party leader, aims to curb trans-shipment practices and open Vietnamese markets to US goods at zero tariff.
This deal alleviates immediate trade tension but raises questions for other Asian countries. If Vietnam’s "compromise" becomes a template, it suggests Trump's administration is willing to impose steep tariffs unless nations quickly accede to US demands. Investors should monitor supply chains reliant on Southeast Asia, as new tariff dynamics could disrupt manufacturing flows and costs.
Basel IV and Defence Spending Concerns
Deutsche Bank’s warning that new capital rules (Basel IV) could choke funding to smaller defence suppliers in Europe underscores a conflict between financial stability and geopolitical security. Rising risk-weighted assets (RWAs) could dampen lending capacity, limiting efforts to scale up European arms production at a time of heightened security threats.
Deutsche estimates its RWAs could climb by €63 billion, dragging its CET1 ratio down to 10.4% — below current targets. The shift to more standardized risk models could reduce flexibility for lending to Mittelstand firms crucial to Germany's defence supply chain.
US Banks: Shareholder Returns Surge Amid Softer Regulation
After passing a more lenient Federal Reserve stress test, major US banks like JPMorgan, Goldman Sachs, and Bank of America announced large increases in dividends and share buybacks. JPMorgan authorized up to $50 billion in buybacks; Goldman hiked its dividend by 33%.
These actions reflect stronger capital positions and a regulatory environment favoring investor returns over capital buffers. While this supports stock valuations in the near term, it raises longer-term questions about systemic resilience, particularly if economic conditions deteriorate or credit losses rise unexpectedly.
Microsoft: Workforce Cuts Reflect AI and Cost Discipline
Microsoft announced another 9,000 job cuts, totaling over 7% of its global workforce this year. The reductions align with efforts to manage costs amid heavy AI infrastructure investment and economic uncertainty.
Despite strong AI-driven growth, big tech firms are signaling a shift toward leaner operations. This move suggests a maturing of AI monetization strategies, with potential headwinds for labor markets in software and tech-adjacent roles.
France and Europe: Critical Minerals Independence Drive
French-led projects to reduce rare earths dependence on China are gaining momentum but face scale limitations. EU initiatives, like Solvay’s reactivation of La Rochelle and MagREEsource’s magnet projects, signal gradual progress. However, Europe still imports 98% of its rare earth magnets from China, and output remains modest relative to demand.
Industrial groups should prepare for continued supply chain fragility and consider diversification or stockpiling strategies. Policy support and premium pricing for local production will be critical to success.
In June, the European high-yield (junk bond) market shattered records, with issuance climbing to €23 billion — surpassing the previous high set in June 2021 by around €5 billion. The number of deals also reached an all-time record at 44, according to PitchBook. This sharp increase reflects a significant investor shift away from US credit markets due to rising fears over President Trump’s erratic trade policies and surging US borrowing needs.
Many investors, spooked by the unpredictability of US tariff measures and ballooning fiscal deficits, have sought relative stability and yield in European credit. The dollar’s slide to its weakest start in more than 50 years has further accelerated the move. European high-yield bond funds have seen seven consecutive weeks of inflows, per Bank of America data, highlighting this shift.
Falling Borrowing Costs and Issuer Revival
Amid the influx of capital, borrowing costs for risky European corporates have dropped sharply. High-yield spreads over government bonds fell from more than 4 percentage points in April to 3.1 percentage points by end-June (ICE BofA data). Companies previously shut out of the market — including CCC-rated issuers — have seized this window.
Flora (a KKR-owned plant-based spread producer) successfully issued €400 million in bonds at 8.625%, roughly 4 percentage points below comparable past debt. Czechoslovak Group issued five-year euro and dollar bonds at 5.25% and 6.5%, significantly lower than its last 11% private credit deal. Even Carnival, the cruise operator historically forced to borrow at double-digit rates, tapped markets with €1 billion of bonds at just 4.125% to refinance dollar debt.
The surge illustrates investor appetite for yield amid declining US bond market appeal. It also reflects a "risk-on" environment, with managers eager to deploy cash before spreads tighten further. As one investor noted, “The market is running red hot,” signaling both opportunity and potential for overheating risks if economic conditions shift abruptly.
UK Gilt Market Turbulence Amid Political Instability
In the UK, gilts (government bonds) saw sharp sell-offs as political turmoil erupted over fiscal policy. Chancellor Rachel Reeves' emotional House of Commons appearance, combined with Prime Minister Starmer’s failure to back her publicly, deepened concerns over fiscal discipline.
The yield on 10-year gilts surged by 0.16 percentage points to 4.61% — the largest one-day jump since April's bond rout. The pound slid 1.2% against the dollar. Investors now question whether fiscal rules will be maintained, especially after a £5 billion welfare reform U-turn blew a hole in budget plans.
Market fears center on the possibility of rising deficits and increased borrowing costs, which could feed into longer-term inflation expectations. This uncertainty underscores the importance of policy credibility and communication in maintaining investor confidence.
UK Trade Frictions: PEM Blockage
In trade, the UK’s bid to join the Pan-Euro-Mediterranean (PEM) convention to help exporters simplify supply chains post-Brexit has been blocked by Brussels. EU officials worry the move could allow UK goods unfair tariff access into the EU.
This development underlines ongoing post-Brexit friction despite recent attempts to "reset" relations. UK exporters, especially in manufacturing and automotive sectors, will continue facing higher costs and administrative burdens, reducing competitiveness against EU-based producers.
Security Risks: Oil Tanker Attacks Raise Tensions
A spate of limpet mine attacks on oil tankers in the Mediterranean and Baltic Sea this year has unnerved global shipping and energy markets. Recent explosions on vessels linked to Russian and Libyan ports — including last week’s attack on the Greek-owned Vilamoura — suggest sophisticated sabotage campaigns, with Ukraine among the suspected actors.
These incidents highlight vulnerabilities in global oil supply chains, potentially pressuring insurance costs and freight rates. For energy markets already sensitive to Middle Eastern conflict, this raises additional geopolitical risk premia.
Vietnam-US Trade Agreement: A Mixed Signal
Vietnam has agreed to a 20% baseline tariff on exports to the US, significantly reduced from an initial 46% but still above pre-2024 levels. The agreement, struck during a direct call between Trump and Vietnam’s Communist Party leader, aims to curb trans-shipment practices and open Vietnamese markets to US goods at zero tariff.
This deal alleviates immediate trade tension but raises questions for other Asian countries. If Vietnam’s "compromise" becomes a template, it suggests Trump's administration is willing to impose steep tariffs unless nations quickly accede to US demands. Investors should monitor supply chains reliant on Southeast Asia, as new tariff dynamics could disrupt manufacturing flows and costs.
Basel IV and Defence Spending Concerns
Deutsche Bank’s warning that new capital rules (Basel IV) could choke funding to smaller defence suppliers in Europe underscores a conflict between financial stability and geopolitical security. Rising risk-weighted assets (RWAs) could dampen lending capacity, limiting efforts to scale up European arms production at a time of heightened security threats.
Deutsche estimates its RWAs could climb by €63 billion, dragging its CET1 ratio down to 10.4% — below current targets. The shift to more standardized risk models could reduce flexibility for lending to Mittelstand firms crucial to Germany's defence supply chain.
US Banks: Shareholder Returns Surge Amid Softer Regulation
After passing a more lenient Federal Reserve stress test, major US banks like JPMorgan, Goldman Sachs, and Bank of America announced large increases in dividends and share buybacks. JPMorgan authorized up to $50 billion in buybacks; Goldman hiked its dividend by 33%.
These actions reflect stronger capital positions and a regulatory environment favoring investor returns over capital buffers. While this supports stock valuations in the near term, it raises longer-term questions about systemic resilience, particularly if economic conditions deteriorate or credit losses rise unexpectedly.
Microsoft: Workforce Cuts Reflect AI and Cost Discipline
Microsoft announced another 9,000 job cuts, totaling over 7% of its global workforce this year. The reductions align with efforts to manage costs amid heavy AI infrastructure investment and economic uncertainty.
Despite strong AI-driven growth, big tech firms are signaling a shift toward leaner operations. This move suggests a maturing of AI monetization strategies, with potential headwinds for labor markets in software and tech-adjacent roles.
France and Europe: Critical Minerals Independence Drive
French-led projects to reduce rare earths dependence on China are gaining momentum but face scale limitations. EU initiatives, like Solvay’s reactivation of La Rochelle and MagREEsource’s magnet projects, signal gradual progress. However, Europe still imports 98% of its rare earth magnets from China, and output remains modest relative to demand.
Industrial groups should prepare for continued supply chain fragility and consider diversification or stockpiling strategies. Policy support and premium pricing for local production will be critical to success.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.