- Risk is grinding tighter despite heavy supply.
Credit spreads stayed unchanged-to-tighter and equities rose, even with record USD supply (USD90bn in the first three US trading days). Europe also absorbed “record-breaking” primary issuance: 43 deals/28 issuers raised EUR36bn in the opening week. Books averaged >3.5x with minimal NIPs, signalling robust underlying demand. - Buy-the-dip is entrenched; macro uncertainty is narrowing.
Geopolitical headlines are not being priced meaningfully because they are seen as unlikely to shift growth/monetary policy, even if tail risks are rising. “Recession fatigue” has embedded dip-buying unless an unmistakable downturn catalyst appears. Faster-than-expected disinflation makes the ECB outlook more one-sided, reducing near-term Euro rates-vol risk. - Covered bonds have started 2026 with “eye-watering” demand—record by any standard. Through 8 January, EUR9.75bn placed drew >EUR47bn of demand (5.3x), with spreads 7–10bp tighter vs IPTs. That is a regime-shift versus historical covered-bond oversubscription of ~1.3–1.7x. The data look more like higher-beta bank capital markets than like “classic” covered bond execution.
- Covered-bond books are now matching AT1-style intensity—and outpacing senior bank debt norms.
According to our financials strategy desk, average oversubscription is ~2.7x for SP/SNP financial debt, ~3.2x for Tier 2, and ~5x for AT1s. With 5.3x YTD, covered bonds are in line with AT1s and well above SP/SNP and Tier 2 averages. Importantly, SP/SNP/T2/AT1 YTD metrics have deviated less YTD from long-run averages than covered bonds have. - Tight pricing is “sticking” in secondary, enabling Pfandbrief to clear inside MS+30bp in 10Y.NIESA’s EUR dual-tranche printed at MS+13bp (5Y) and MS+26bp (10Y) and then tightened by ~1–2bp in secondary. That backdrop has let 10Y Pfandbrief (e.g., DZHYP/CMZB) price inside MS+30bp and tighten further post-deal. Net technicals look supportive: January redemptions just above EUR20bn.
- French covered bonds are being “taken down” because investors see few close substitutes above MS+50bp.
CMARK 10Y EUR750m priced at MS+56bp (8–9bp inside France) on a EUR3.6bn book with only EUR50m dropping at re-offer. Scarcity of alternatives: e largely other French CBs, hard-to-source long Italian CBs, or smaller issuers. The three 10Y French deals tightened ~4–6bp in secondary, reinforcing the demand signal. - SSA supply is also surging. USD SSA primary has opened with record volumes and record books, with core spreads back to low-single digits vs USTs.
USD SSA market printed USD31.5bn last week— a record start to the year—with no sign of weakness. EIB’s new USD6bn 5Y at SOFR MS+32 gathered >USD42.5bn orders (largest-ever USD SSA benchmark book). Other standouts include ASIA USD3.5bn 10Y with USD20bn orders and Quebec USD4.5bn 5Y with >USD16bn demand. - EUR SSA tone is strong, but valuations look “punchy” and increasingly vulnerable to ASW moves/profit-taking. NIESA’s EUR 1.5bn 5Y and 1.5bn 10Y were priced 3bp tighter than IPTs, with books of EUR7.4bn and EUR10.3bn. KfW’s EUR 5bn 3Y / 5bn 10Y drew >EUR97bn combined orders; EIB trading flat to KfW is hard to justify in our view. Long-end demand is evident (NRW EUR1bn 30Y saw EUR21.5bn orders).
- The EU is expected to go for the first syndicate deal of the year this week. In this regard, we expect the EU to go for a large transaction (up to EUR10bn), and we expect a new 3y and tap of 2055. A usual pattern for the EU is to tap new lines through syndications two months after they have been issued.