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📊 European Credit Alpha: Tariff Floor

Key Insights:

• Markets Complacent Amid Uncertainty: CDS indices have outperformed cash since "Liberation Day," driven by complacency over tariff-induced macro risks. US economic data is mixed, with concerns about supply chain disruptions.
• Tariff Negotiations: The EU-US tariff talks have not resolved the baseline tariff (10% for the UK, potentially higher). Markets underestimated the impact, leading to complacency.

European Credit Market Trends:

• Credit Strategy: Focus on relative value trades, especially in corporate hybrids due to scarcity and demand from ESG funds. CDS-wider positions are recommended in high-yield space.
• Greenium Changes: Euro-denominated green bonds show higher premiums (+2bp) due to supply scarcity. Sustainability bonds have a new premium, while social bonds are in high demand (+39% y/y for new issuance).

🌱 Sustainable Investing Research

• Greenium Increases: Corporate greenium now stands at ~2bp, with euro green bonds up to ~3bp. A potential global carbon accounting standard could further boost green bond demand.
• Social Bonds: A ~2bp premium for social bonds, driven by ESG fund demand. Sustainability bonds (SLBs) show minimal premium due to niche focus in ESG funds.

💼 European High Yield

• Supply Forecast Cuts: Reduced to €80bn gross/€30bn net due to fewer refinancings and M&A activity. Leveraged loan supply increased to €75bn gross, driven by stronger refinancings.

🛠️ Hybrid Capital

• TenneT Case Study: Restructuring increased senior debt to TenneT Netherlands. Outcomes depend on bond replacement in subsidiaries, with current hybrids fairly priced.

📅 Reporting Calendar & Events

• Upcoming key dates include company earnings (e.g., UniCredit, Evonik, Bayer) and economic data releases across Europe and the US.

📎 Disclaimer

Barclays maintains a strict research policy, disclosures on conflicts of interest, ratings methodology, and legal compliance.