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Key themes that characterised the European corporate sector this year — AI-focussed borrowing, US corporates turning to euros, the rise of subordinated issuance — are expected to continue into 2026, as higher redemptions offset any pre-funding done in 2025 to take next year’s supply to new heights.

Total corporate investment grade issuance in euros year-to-date hit €419bn in early-December, according to 9fin data, which is a 15% increase over 2024 and essentially matches the record supply fuelled by the Covid-19 pandemic in 2020 (€423bn).

“A pretty phenomenal number, really,” commented a syndicate banker, who noted that the final figures were so close that their internal numbers have 2025 supply surpassing 2020.

The European IG credit market is closing out the year with historically tight spreads, with the iTraxx European index coming towards year-end some 6bp tighter year-to-date at the +52bp level on 16 December.

Average corporate bond spreads continued to tighten throughout the final month of the year to the lowest levels since 2018, with the Bloomberg EuroAgg Corporate Average AOS at around 78bp in mid-December. This is from 103bp at the beginning of the year, and a peak of 128bp in April.

Expectations for supply in 2026 are €450bn-€475bn, according to 9fin sources.

An active start to 2026 lies ahead, with 10% of full-year issuance typically done in January, which means at least €40bn of issuance in the first month of the year to stay in line with that prediction. By comparison, there was €33bn of corporate issuance in January 2025.

“However, I do think for corporates the more natural funding windows tend to be, March, May, September, November,” said the syndicate banker.

The corporate sector is heading into a period of record high redemptions of €283bn in 2026 and a further €289bn in 2027. By comparison, there were around €250bn of redemptions in 2025.

“Even if you assume some of the 2026 has been pre-financed, you should expect to see more issuance just to deal with redemptions,” said the syndicate banker.

The buy side approach for 2026 is unanimously in favour of high-quality, as a source of portfolio stability and valuable downside protection amid ongoing uncertainty. Higher-rated investment grade corporate bonds are offering average yields near the upper end of the 15-year average, while high yield bonds are underperforming by comparison.

“Investors should choose their position wisely over chasing yield,” said a senior portfolio manager.

Yield curves have returned to normal after an unusual period when short-term bonds yielded more than longer-term ones. With yield curves currently positively sloped, investors will be rewarded with higher yields for considering intermediate and long-term bonds.

Coupon payments have been the key driver of returns for most corporate bond investment this year. The focus in 2026 will remain on interest income instead of capital gains.

Reverse-Yankees were a strong feature in the corporate sector this year, accounting for over €93bn of issuance which is the second highest annual supply with the exception of 2019.

Supply from US issuers has, in part, been bolstered by the wave of AI-focussed borrowing which, while mostly impacting the dollar market, has also made an appearance in euros this year. Because of this we have seen much chunkier deals than customary in the euro market.

The largest deal of the year was a six-part transaction for Alphabet in November. This deal (€6.5bn), along with a €6.75bn multi-tranche in April gave Alphabet the largest combined issuance from any issuer in euros this year.

Alphabet’s deal stretched out maturities to 2064. Many issuers opted for longer maturities this year as higher demand supported longer duration at lower costs — among them American pharmaceutical company Bristol Myers and Danish pharmaceutical company Novo Nordisk. Novo Nordisk contributed €10bn to the market this year — €4bn in November and €6bn in May — making it the largest euro volume from a European issuer. Outside of Euros, British-Australian multinational mining corporation Rio Tinto issued the largest US-dollar deal ($9bn) from a non-US issuer, with Swiss pharmaceuticals company Novartis the second largest ($6bn).

This momentum from US corporates is expected to carry into 2026, according to Citi strategists, who forecast that non-financial reverse Yankee supply could rise to €95bn–€100bn as more technology firms issue euro bonds to fund capital spending.

One reason for the continued supply from US corporates is simply because of the interest rate differential between the currencies, according to one senior banker who explained that issuers can present the lower financing costs internally and point to the cost saving, although the 10-year German/US government spread differential at 130bp area is 20bp lower than the recent high we saw in late October.

“A lot of US corporates have big issuance capacity, and there is a willingness and an appetite to diversify,” said another syndicate banker.

In combination with US corporate issuance which made up around 20% of total supply in 2025, relatively high levels of ongoing M&A was another big driver for this year. “We think M&A is relatively stable, but will continue to be pretty active,” said the syndicate banker.

AI is expected to go from a micro to a macro theme in 2026. This as AI-linked expenditure spreads into other sectors like utilities, real estate and construction, although large question marks remain over returns on that investment and the creation of bubbles.

“The big question that everyone is talking about is this AI CapEX,” said the syndicate banker. “Globally, we saw $200bn of AI CapEx-related issuance across tech, utilities, real estate — that's in all markets and currencies. In Euros, we think it was closer to only around 10% of that. There's definitely been an increase in activity in Europe, but it's still a fraction of the size of dollars.”

AI constraints remain on supply, rather than on demand, with potential struggles ahead to reconcile AI ambitions with infrastructure reality in the building of data centres. Eyes will be on the US as the global leader in AI data centre investment, with any setbacks to have far reaching implications in sentiment.

The AI-driven productivity boost should have a disinflationary impact in the long run, although in the near term defence spending and AI are likely to exert upward pressure on prices.

Equity markets are likely to become more broadly diversified next year. Not only will big tech continue to grow due to the AI boom, but other regions and sectors are expected to see solid double-digit earnings growth.

Hybrid supply has been on an upward trajectory in recent years to reach over €36bn by early-December, a record volume second only to 2020’s €40.5bn.

An incredibly tight secondary spread environment saw issuers exploring further down their capital stacks to meet investor demand for higher-yielding hybrid debt this year, which issuers were happy to take advantage of to capitalise on the relatively lower coupons that were available.

Spanish electric utility company Iberdrola, for instance, secured the lowest coupon of the year for any hybrid deal with its €1bn 3.75% hybrid European Green Bond in October. Backed by 400 investors that lined up to place over €8bn of orders, the deal achieved a new issue concession of negative 10bps.

US issuers also jumped on the hybrid trend, benefiting from the favourable treatment of hybrid capital following Moody’s updated hybrid methodology. Wireless operator Verizon issued the largest junior subordinated deal in a non-US dollar format for a US corporate issuer with a Euro-equivalent €3.3bn dual-tranche Euro and Sterling hybrid deal in November, breaking a three-year drought in the process.

There is no end in sight for hybrid issuance into 2026 with tight senior subordinated spreads remaining very tight.

“Now is a good time, relatively speaking, to be adding to your hybrid stack,” said a syndicate banker. “I think you could probably see more high yield leverage finance borrowers using the product who historically just hadn't really.”

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Euro IG corporate issuance matches 2020 levels, poised to break record next year

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