Market Debt - Overview of 2024 and Prospects for 2025

In 2024, the European debt market witnessed a significant revival, with four key sectors - Automobile, Industrial & Chemicals, Utilities, and Real Estate Investment Trusts (REITS) - driving supply. The Investment Grade (IG) market saw new issuance volumes reach levels not seen since 2020, accompanied by a notable enhancement rating profile diversification. This resurgence was evident despite global election sensitivity and volatility, as the corporate market saw very healthy levels of primary IG activity, with approximately EUR 335 billion issuance versus redemptions of approximately EUR 250 billion.

The benign backdrop of moderating inflation and modest growth was very supportive for risk throughout 2024. Corporates took advantage of the window of liquidity at the start of 2025, with an expected 8% increase in IG issuance compared to 2024, reaching approximately EUR 340-350 billion. The historically high spread relative to swaps is attracting interest from high-quality investors, such as asset managers and official institutions, as well as hedge funds.

In the Senior Unsecured space, EUR 146bn redemptions are anticipated in 2025 (vs EUR 102 billion in 2024). The market in 2025 has better priced in expectations for rate cuts and quantitative tightening by the ECB compared to 2024, leading to a largely positive tone throughout the year. New issue premiums are slightly tighter, and deals are performing better in 2025, with higher oversubscriptions compared to 2024.

The SSA (Sovereign, Supranational, and Agency) market started 2025 on a positive note, with volumes across various currencies similar to early 2024 but with better sequencing. AT1 & T2 supply volumes are likely to remain high, at c. EUR 45 billion for both categories, while valuation is looking more stretched than 2023/2024. Redemptions for 2025 will come in at around EUR 270 billion, up from the EUR 250bn seen in 2024. The implementation of Basel 4 and potential downgrades could pose some challenges for the SSA market in 2025.

Investors' willingness to lock-in absolute yields is a notable trend in 2025, leading to an increase in hybrid segment, high-yield issuances, private placements, and unrated and primo-issuer volumes. Euro syndicated volumes are down by about 30% in January 2025, but this is offset by increases in GBP, USD, and AUD volumes.

2024 was a year like no other, marked by a complex interplay of political and economic factors, with ongoing geopolitical tensions and shifting trade dynamics. Several uncertainties will likely continue to bring unsettled sentiment in Europe in 2025, notably the upcoming German elections on February 23rd, the potential for a second dissolution of the French General Assembly in July, ongoing tensions in the Middle East, escalation of the Russia/Ukraine war, and the return of protectionist policy and tariff-focused President Trump.

The German federal elections on February 23, 2025, resulted in a grand coalition between CDU/CSU and SPD, focusing on economic stability, digital transformation, tax reforms, and investment promotion, which are expected to influence corporate and financial market strategies in Germany.

Total volumes for European senior debt (across all major currencies) in 2025 are expected to be approximately EUR 250bn, with a likely diversification from the Euro to other currencies. CIB is forecasting a covered bond supply of EUR 150-160 billion for 2025, roughly in line with the c. EUR 157 billion seen in 2024.

For the FIG markets, relative value between asset classes, particularly senior preferred debt compared to covered bonds, is a key topic of discussion between DCM and Syndicate managers. Central banks navigated a delicate balance between combating inflation and supporting economic growth in 2024.

In conclusion, the European debt market in 2024 and 2025 has shown resilience and adaptability in the face of various challenges, with a continued emphasis on diversification, liquidity, and investor appetite for yield. The market is expected to remain dynamic, with ongoing discussions around asset class relative value, geopolitical uncertainties, and evolving regulatory landscapes shaping the trajectory of the market in the coming months.