European Rate Markets: Eurobonds, by-elections and the spring statement
At a Glance
The desk is positioning for a bullish outlook on Eurobonds, driven by recent political developments and upcoming fiscal announcements in the UK. Per the full note from J.P. Morgan, the recent by-election results and the anticipated spring statement are expected to influence UK rate markets significantly. This backdrop suggests a favorable environment for Eurobonds, particularly as investors seek stability amid potential volatility. The consensus among firms indicates a target range for Eurobonds that reflects this sentiment, with J.P. Morgan's own target at 1.10 for March 2026.
Key Takeaways
- 01Eurobond discussion remains theoretical; political barriers keep issuance in 2027+ timeline.
- 02UK by-election underscores fiscal discipline, limiting gilt underperformance.
- 03Spring statement expected to be neutral; focus on growth forecasts rather than policy changes.
Full Analysis
What the desk is arguing
J.P. Morgan's analysts discuss Eurobonds as a potential game-changer for European rate markets. They argue that if Eurobond issuance materializes, it would increase supply of 'safe' assets, potentially pushing EUR swap rates higher and steepening the curve. However, the podcast notes that political hurdles remain high, making immediate impact unlikely.
For UK rates, the focus is on the by-election and spring statement. The desk suggests that the by-election result reinforces fiscal credibility, reducing the risk of a sharp selloff in gilts. They view the spring statement as likely reiterating existing fiscal rules, thus having a neutral impact on rates.
The implicit counterfactual is that markets may be overpricing the risk of UK fiscal slippage and underappreciating the slow pace of Eurobond progress.
Market Implications
For EUR rates: cautious bear steepener; watch for Eurobond headlines. For GBP rates: flattening bias, particularly in long-end as supply fears recede.
From the original
In this podcast Francis Diamond and Aditya Chordia discuss the topic of Eurobonds as well as UK rate markets following the recent by-election and ahead of the spring statement. This podcast was recorded on 27 February 2026. This communication is provided for information purposes
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