Marked by a complex interplay of political and economic factors, 2024 was a year like no other. Ongoing geopolitical tensions and shifting trade dynamics saw central banks navigating a delicate balance between combating inflation and supporting economic growth. While political uncertainties led to a somewhat cautious sentiment, overall, a benign backdrop of moderating inflation and modest growth was very supportive for risk. Combined with an inflow of cash into credit funds, this led to a largely positive tone throughout the year.
Looking through 2025, several uncertainties will likely continue to bring unsettled sentiment in Europe – 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.
With this in mind, Thibault Archeray, Global Head of DCM, Stéphanie Besse, Head of Corporate DCM, Caroline Bryant, Head of FIG DCM, and Emmanuel Smiecench, Co-Head of SSA DCM, discuss 2024 activity across the FIG, Corporate and SSA markets, and present their outlooks for 2025.
Debt capital markets enjoyed a confident 2024, and the prospects for 2025 look positive despite potential political uncertainty.
Thibault Archeray
SSA market tightening after widening too much on 2024
The SSA (Sovereign, Supranational, and Agency) market has started 2025 on a positive note after closing early in December 2024. Volumes across various currencies are similar to early 2024, but with better sequencing, making it easier for investors to digest and leading to better performance.
Euro syndicated volumes are down by about 30% in January 2025, but this is offset by increases in GBP, USD, and AUD volumes. Frequent issuers coming to the euro market before non-frequent ones have also helped shape expectations positively.
Emmanuel Smiecench
2025 is off to a strong start for the SSA market, with positive volume across currencies, and good sequencing among transactions.
January is typically seen as one of the best months for bond investments due to repricing, large choice, and supply. In 2025, the market has better priced in expectations for rate cuts and quantitative tightening by the ECB compared to 2024. However, risks of higher-than-expected inflation and debt pressures remain, especially with the existing absolute yield levels. We still expect volatility across the year.
New issue premiums are slightly tighter, and deals are performing better in 2025 and oversubscriptions are higher compared to 2024. While deals are generally priced more generously in January, the SSA market's widening in 2024 has led to tightening this year.
Looking ahead, the implementation of Basel 4 and potential downgrades could also pose some challenges.
Corporate issuance seeing a healthy start to the year
For corporates, there was a certain level of surprise regarding how dynamic the market was last year – given the global election “super-cycle” which saw more than 60 countries go to the polls, bringing with it significant sensitivity and volatility across the markets. Despite concerns, the market saw very healthy level of primary investment grade activity with approximately EUR 335 billion issuance versus redemptions of approximately EUR 250 billion. New issuance volumes in the Investment Grade (IG) market in 2024 reached levels not seen since 2020, accompanied by a notable enhancement rating profile diversification.
But what particularly stood out, was investors willingness to lock-in absolute yields. The hybrid segment as well as high-yield issuances together with private placements witnessed an increase, indicating a growing appetite for risk & yield among investors. This phenomenon suggests that investors are also willing to seize opportunities in riskier segments, especially in the current context of declining interest rates. Unrated and primo-issuer volumes remained steady in 2024, with a strong emergence of new primo issuers.
Corporates are taking advantage of an open window of liquidity at the start of 2025 whilst uncertainties remain important for the year to come.
Stéphanie Besse
The beginning of 2025 has also been pretty healthy, with many corporates taking advantage of the window of liquidity. Natixis CIB expects to see a c.8% increase in IG issuance vs 2024 reaching C. EUR 340-350 billion, with 4 key sectors potentially driving supply: Automobile –with a significant increase in needs, Industrial & Chemicals – which will see a high level of redemptions in 2025, Utilities – which will continue to be active, as transition will continue to be a key theme for the sector, but we will see more currency diversification, and finally REITS – which will continue to grow now that yield levels are back to what issuers see as acceptable.
Redemptions for 2025 will come in at around EUR 270 billion, up from the EUR 250bn seen in 2024. But 2026 will be the year of redemptions – with EUR 300bn on the table.
FIG seeing diversification of currencies to come
For the FIG markets, two key topics stand out in discussions between DCM and Syndicate managers: (1) the relative value between asset classes, particularly senior preferred debt compared to covered bonds, and (2) the factors that could potentially derail significant inflows that have been seen across credit funds over the past 18 months. These inflows have contributed to the tightening of spreads and the strong demand in the primary markets.
The initial wave of covered bond transactions this year have reassured issuers about current appetite, despite challenging relative value compared to the SSA segment. Looking back to 2024, there was considerably more uncertainty in the covered bond market in December, due to volatility in the rates market and the tightening of swap spreads.
The historically high spread relative to swaps is attracting interest from both high-quality investors, such as asset managers and official institutions, as well as hedge funds. This interest explains the significant size of the order books.
Caroline Bryant
Issuers have been reassured by covered bond activity so far this year, following the challenging end to 2024.
Looking ahead through 2025, Natixis CIB is forecasting a covered bond supply of EUR 150-160 billion, roughly in line with the c. EUR 157 billion seen in 2024. However, there are potentially two elements that cold lead to a reduction of supply in 2025: uncertainty in demand for long durations (10 years and longer), and if the current spread differential to senior debt remains tight. In light of this, some issuers are currently evaluating whether it makes sense to use collateral at these high spread levels.
In the Senior Unsecured space, the primary driver is refinancing and to a lesser extent asset growth. EUR 146bn redemptions are anticipated in 2025 (vs EUR 102 billion in 2024). We expect total volumes EUR 250bn in European senior debt (across all major currencies) in 2025, in line with 2024 volumes, with a likely diversification from the Euro to other currencies.
Looking at Capital, 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. The call pipeline in 2025 and early 2026 is very robust, despite including some of the lowest reset instruments. Insurance supply and appetite for the sector should also remain robust, naturally skewed to Tier 2, but also with a healthy RT1 pipeline given the expected refinancing of some grandfathered Tier 1 instruments.
