European Rate Markets: Eurobonds, By-Elections and the Spring Statement

The episode opens with a deep dive into euro‑area financing, where analysts stress that new defence‑related facilities and joint‑issuance ideas will not boost EU funding until the late 2020s. In the near term, the EU’s issuance outlook remains modest, but any additional programmes after 2027 could offset the sharp decline expected when the NGU and Ukraine loan facilities expire. German bonds stay central to the discussion, with a 10‑year yield target around 2.70% and a neutral stance as money‑market curves flatten, suggesting limited upside for duration‑focused investors.

On the UK side, the Green Party’s surprise by‑election win is framed as a political headline rather than a market mover. Despite Labour’s vote share slump, gilt yields and swap spreads have shown little reaction, and any leadership challenge to Prime Minister Starmer is seen as more likely after the May local elections. The upcoming spring statement is projected to be a routine fiscal update, with the Debt Management Office keeping gilt issuance near 250 billion pounds and only a modest reduction in long‑end supply expected, limiting any immediate pricing impact.

Finally, the hosts assess the Bank of England’s policy trajectory. Recent labour market softness and a rise in unemployment support a 25‑basis‑point rate cut to 3.5% in March, though core service inflation remains sticky. MPC voting dynamics appear tight, with Governor Bailey positioned as a swing voter, creating some uncertainty around the exact timing. Market pricing still reflects a probable cut, but the risk of a hold in March and a potential April reduction remains a key narrative for fixed‑income investors.