Coupons rising

October 2, 2025

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In his latest column on the key developments, themes and opportunities in credit markets, Ian Horn discusses what’s been driving the strong technical in EUR credit.

European credit markets have benefited from a strong and persistent technical environment over the last 24 months driven by several factors, some of which we have covered. In summary though, we have seen a rise in marginal buyers propelled by a variety of market dynamics.

Rising demand for EUR credit

In comparison to the Federal Reserve, the European Central Bank (ECB) has cut rates at a relatively swift pace leaving EUR investors seeking higher-yielding opportunities as cash became less attractive.

Currency hedging costs have also made EUR-denominated credit attractive on a yield basis for global investors, and we have seen increased demand for EUR credit from investors diversifying their US exposure.

In the case of high yield, the EUR market has also been shrinking. Upgrades to investment grade and the growth of other funding markets has helped the sub-asset class shrink since the beginning of 2022.¹ 

The growth of European CLOs - which have the capacity to own bonds - and fixed maturity funds have also reduced the available ‘free-float’ in the EUR high yield market, given the buy-and-hold nature of these strategies. All these technical factors have kept demand for EUR credit strong.

Higher coupons

There has also been another factor benefiting USD and EUR markets - rising coupons. 

Since the ECB’s rate hikes of 2022 and 2023, companies have been forced to issue debt with higher coupons. The shorter-dated nature of the European markets has helped average coupons to rise faster than in the US as maturing bonds are refinanced (Figure 1).

In European high yield, the average coupon has risen from 3.5% in Q4 2022 to above 5.0% currently.¹ This coupon income is often recycled into credit markets, bringing further buying pressure and keeping the market supported. The same has been true in investment grade. Versus other technical factors highlighted above, the buying demand created by coupons is expected to continue to grow.

In the EUR investment grade market only 48% of current bonds outstanding have been issued in the higher rate environment (since the end of 2022) while 52% were issued between 2013 and 2020 when ECB rates were zero or negative.²  For comparison, in the EUR high yield market 63% of outstanding bonds have been issued since the end of 2022.¹

Within investment grade, we see a dynamic we would expect. A greater proportion of the longer-dated market is represented by recently issued bonds, while the shorter-dated market continues to be dominated by older, lower coupon issuance (Figure 2).

Should yield levels in EUR credit stabilise, we should continue to see steady growth in average coupons across the market as remaining low coupon issuance is refinanced. This will be particularly visible in short-dated credit.  

This persistent and rising income for credit funds has created another marginal buyer that is likely to continue to grow. In the case of EUR high yield, these flows have been competing for a shrinking pool of assets, but rising coupon income has contributed to the resilience seen across credit markets.

References

1.ICE Index Platform, as of 30th September 2025. ICE BofA Euro High Yield Index (HE00).
2.ICE Index Platform, as of 30th September 2025. ICE BofA Euro Corporate Index (ER00).

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of October 2025, and may change without notice.

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Index descriptions

ER01 – The ICE BofA  1-3 Year Euro Corporate Index is a subset of ICE BofA Euro Corporate Index (ER00) including all securities with a remaining term to maturity less than 3 years.

ER02 - ICE BofA 3-5 Year Euro Corporate Index is a subset of ICE BofA Euro Corporate Index (ER00) including all securities with a remaining term to final maturity greater than or equal to 3 years and less than 5 years.

ER03 - ICE BofA 5-7 Year Euro Corporate Index is a subset of ICE BofA Euro Corporate Index including all securities with a remaining term to final maturity greater than or equal to 5 years and less than 7 years.

ER04 - ICE BofA 7-10 Year Euro Corporate Index is a subset of ICE BofA Euro Corporate Index including all securities with a remaining term to final maturity greater than or equal to 7 years and less than 10 years.

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