Since late February, global markets have been shaped by renewed geopolitical tensions in the Middle East, triggering a sharp increase in oil prices and reigniting inflation concerns.
Brent crude prices moved above $118 per barrel[1] at the end of March, adding pressure at a time when growth momentum is weakening across developed economies. This has complicated the outlook for central banks. In Europe, expectations of rate cuts have been pushed back, with markets now pricing a potential hike. The ECB is expected to remain data-dependent, balancing slowing growth against inflationary risks. In the US, the Federal Reserve has also adopted a more patient stance, signaling that restrictive policy may need to remain in place for longer.
Government bond yields[2] have adjusted accordingly, with 10-year Bund, OAT and US Treasury yields rising by around 30 to 40 basis points over the month of March. This shift has reinforced the “higher-for-longer” rate environment, which continues to shape fixed income markets.
In this environment, Euro Investment Grade (IG) credit markets have experienced a spread widening, reflecting macro uncertainty and higher rates rather than a deterioration in corporate fundamentals.
Spreads widened by around 15 basis points over the month[3], coming to the 90 basis points area from historically tight levels. Importantly, the adjustment has remained orderly and consistent with a normalization of risk premia rather than any form of market dislocation.
Fundamentals across the IG universe remain robust. European corporates continue to benefit from strong balance sheets, conservative leverage and solid interest coverage ratios, even as refinancing costs gradually increase. Following a period of downgrades in 2022–2023, rating trends have stabilized, displaying a positive rating drift across the asset class[4].
At the same time, the increase in underlying yields has materially improved the carry profile. Euro IG now offers yield levels getting closer to 4% not seen since 2024[5], providing a stronger buffer against volatility and enhancing forward-looking return expectations.
Primary market activity has remained active and well absorbed, with issuers accessing markets opportunistically, with a demand for Euro IG credit that is well supported.
Institutional investors remain engaged, seeking income in a higher-yield environment with a good asset quality and where alternatives offering comparable risk-adjusted returns may be limited.
The supply dynamics remain manageable as many issuers have already prefunded a significant portion of their financing needs, limiting net supply pressure. At the same time, the market has seen strong reverse Yankee activity, with nearly €58 billion euro-denominated issuance from US corporates in the first quarter[6], including historic transactions such as Amazon’s €14.5 billion multi-tranche deal. ESG-labelled bonds (green, social and sustainability) kept their issuance stance with €43 bn, remaining in their 5-year 20% average proportion of total EUR IG supply[7].
The combination of higher yields and moderately wider spreads has restored an attractive entry point in Euro IG credit.
While short-term volatility is likely to persist, driven by geopolitical developments and evolving monetary policy expectations, the structural characteristics of the asset class remain supportive: strong corporate fundamentals, low default risk, resilient demand and improved carry.
In this context, Euro IG stands out as a high-quality segment of fixed income, offering a combination of income, capital preservation and relative stability. Selectivity remains key, as dispersion across issuers and sectors continues to increase.
Active management is therefore essential to capture relative value opportunities and navigate an environment where macro uncertainty remains elevated.
Our ESG framework should be understood primarily as a framework to enhance the overall quality and diversification of a portfolio.
By excluding the most controversial activities and structurally weaker issuers, and by favoring companies with stronger governance, more resilient business models and credible transition strategies, ESG act as a quality filter. It helps tilt portfolio towards issuers that are, in our view, better positioned to navigate regulatory, environmental and social challenges.
At the same time, sustainable investing expands the investment universe through dedicated instruments such as Green, Social and Sustainable bonds. These segments provide access to a broader set of issues, projects and use-of-proceeds structures, supporting diversification across sectors and themes while maintaining credit discipline.
In an environment marked by elevated uncertainty around growth, inflation and policy, this combination of higher issuer quality and broader opportunity contributes to building more robust and well-balanced portfolios.
Our Euro Corporate Sustainable Bond strategy aims to capture the improved carry and resilience of the Euro Investment Grade market while maintaining a strong sustainability profile.
The strategy combines rigorous fundamental credit analysis with Candriam’s ESG framework. The investment process focuses on high-quality issuers with solid balance sheets, resilient business models and sound ESG characteristics, enhancing overall portfolio robustness.
Positioning remains biased toward defensive sectors and companies with pricing power, while avoiding areas with elevated credit or sustainability risks. ESG integration complements this approach by reinforcing quality and limiting downside exposure.
Credit can feel calm because returns are steady most of the time. But credit is asymmetric: the upside is limited to the coupon, while the downside can be permanent if fundamentals weaken or liquidity disappears.
[1] Bloomberg CO1 Cmdty Index as of 31/03/2026.
[2] French OAT 10-year (GTFRF10Y Govt), German Bund 10-year (GTDEM10Y Govt), US Treasury 10-year (GT10 govt).
[3] ICE BofA Euro Corporate from 27/02/2026 to 31/03/2026.
[4] Bloomberg RATT function as of 27/03/2026.
[5] ICE BofA Euro Corporate Yield to Worst as of 31/03/2026.
[6] JP Morgan The Quarterly Wrap: European Investment Grade 1Q26 Review published 1st April 2026.
[7] JP Morgan The Quarterly Wrap: European Investment Grade 1Q26 Review published 1st April 2026.
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