- 19/5/2025

The appeal of the European bond market

3 min

Where do things stand right now?

Inflation in April turned out to be lower than expected, at just 2.3%. Although it remains above pre-crisis levels, inflation in the services sector is also falling. This suggests that the Federal Reserve has ultimately done its job, and that the shock caused by the spike in energy prices in 2022 is now well behind us.

However, the financial markets – and particularly long-term interest rates – are still feeling the impact of the chaotic first 100 days of Donald Trump’s second term. 10-year rates are hovering around 4.5%. At the time of writing, official statements remain ambiguous: a deal appears to be in the works between the U.S. and China to reduce tariffs to less damaging levels, but nothing is certain. Anxiety persists, and markets are pricing in this uncertainty, to the dismay of public finances and all those needing to borrow.

A sign of the times

The rate increase has been most pronounced in the U.S., confirming that tariffs are the primary – and possibly sole – driver of current market tension. At the same time, U.S. companies are tapping into the European debt market at record speed, attracted by lower borrowing costs on the continent and the opportunity to diversify their funding sources.

European investor appetite for bonds has enabled non-financial companies in the U.S. to raise €40 billion so far this year, up from just €30 billion over the same period in 2024. Among the firms securing multi-billion-euro deals are Google’s parent company Alphabet, the telecoms group T-Mobile U.S., and pharmaceutical company Pfizer. If this pace of issuance continues, total annual volumes will exceed the previous record of €88 billion set in 2019.

Clearly, uncertainty over the scope and fallout of President Trump’s tariff policies has prompted many companies to borrow quickly, in an effort to lock in financing before any potential economic shock leads to further increases in borrowing costs.

The outlook remains uncertain, but as always, businesses are adapting.