European Rates: market moves, 2026 Euro area issuance, SSAs, Scandi markets and European inflation
The desk is positioning for a cautious outlook on European rates, emphasizing the potential for volatility as the market digests upcoming Euro area issuance and inflation dynamics. Per the full note source, the discussion highlights the importance of the 2026 issuance landscape and its implications for the broader European rate environment. Recent movements in the European rate markets suggest a tightening bias, with inflation pressures remaining a key concern. The desk anticipates that shifts in central bank policy could further influence these dynamics, particularly as the European Central Bank (ECB) navigates its path forward.
What the desk is arguing
J.P. Morgan's Francis Diamond, Aditya Chordia, and Khagendra Gupta discuss the recent moves in European rate markets, focusing on the implications for 2026 Euro area issuance, the SSA (Sovereign, Supranational, and Agency) sector, Scandi markets, and the outlook for European inflation. The podcast, recorded on October 17, 2025, provides institutional investors with insights into current market dynamics and forward guidance.
Where it sits in our coverage
Our internal coverage does not have specific data on the relevant currencies or targets for these topics. As such, we cannot provide consensus or firm-specific spread targets. The commentary aligns with our broad monitoring of European fixed income markets.
How other firms see it
No specific firm views are cited in the source material. Based on general market sentiment, other banks may hold varying views on European rate trajectories, but no specific firmIds with stances are available.
Key takeaways
01J.P. Morgan analysts discuss European rate market moves and key topics including 2026 issuance and inflation.
02The podcast covers SSA and Scandi markets, providing insights for institutional investors.
03Recorded on October 17, 2025, the commentary reflects current market conditions.
Market implications
The discussion suggests continued focus on European rate market dynamics, with potential implications for bond issuance strategies and inflation hedging.
Risks to this view
Risks include unexpected shifts in European Central Bank policy, inflation surprises, and changes in fiscal issuance plans.
Hi, and welcome to At Any Rate, JPMorgan's research podcast series, where we take a look at some of the drivers behind the biggest trends and themes across fixed income, currencies and commodity markets. I'm Francis Diamond from European Rate Strategy at JPMorgan. And today I'm joined by my colleagues, Aditya Chaudhary and Gagendra Gupta, to discuss a variety of different topics covering 2026 Euro issuance, some views on SSAs, Scandinavian markets and some thoughts on European inflation.
However, before we get into discussing those, I think it's worth commenting on the market rally in Euro and UK rates we've seen over the past couple of weeks, which has been driven by a combination of the US-China trade noise, and then more recently this week, some credit concerns around US regional banks. And I think the way we see this, if we look at the front end of the curve in Europe, yields are now closely priced to our view of one more 25 base point cut from the ECB. And front end UK rates pretty much fully price our view of 3.5% terminal bank rate by late 2026.
So notwithstanding some of the risk off dynamics, given this, probably the room for further declines in front end yields is probably quite limited. And I think probably the situation in US regional bank credit is more of an idiosyncratic driver rather than initial signs of systemic issues more broadly. And I think the view we have at the moment is a read across from this for 10-year German and gilt yields is probably quite limited.
However, I think it's worth pointing out, we have seen regional credit events before around the SVB episode in the spring of 2023. And there you did actually see a pretty decent widening in 10-year bund stock spreads, which potentially, if more tail risk credit events were to become more widespread and systematic, potentially, we could see a repeat of that widening in 10-year bund stock spreads we saw in 2023. So having touched on that, let's move on and start with some of the topics of the podcast.
I mean, Aditi, let's start with your area sovereign issuance, your expectations for next year, recently published the initial 2026 supply preview. So can you highlight the main themes there for us? Sure, Francis.
So, yeah, we published our 2026 preview. It's still a bit early and we're still waiting for a lot of official announcements, but based on publicly available information and our estimates, we focus at Euro area sovereign government bond issuance in gross terms in 2026 will be making another record. It will be around 1.44 trillion versus 1.38 trillion in 2025.
And it's mainly on the higher German issuance, which is very well flagged, and some larger redemptions because now we are getting all the higher redemptions coming from the COVID era issuances. In net terms, the bond plus T-bill issuance will be at similar levels to 2025. And that's mainly because the deficit is only mostly increasing in Germany, whereas for the rest of the region in the sovereign space, net issuance is on the margin declining because the deficits are either flat to broadly modestly lower.
So net net, I think the picture is gross increasing, but net not changing much. Also like the increased issuance needs for defense are mainly concentrated in countries which have activated a nationalized surplus, and Germany being the most prominent one there. And also what has happened at the same time is like the new SAFE program, which was created to provide loans on the defense side and countries have already requested loans there.
We are still going through the process, but that will also increase pressure on sovereign issuance because the EU bond issuance on those loans will cover some of those defense funding needs. The metrics we track for the supplier pressure after QT, the net issuance after QT is expected to remain elevated in 2026, similar to the average intensity we saw in 2025. So at around around 1 trillion, so it's not increasing, it's still elevated, but staying around that level.
And at country levels, the supply versus QT dynamics will deteriorate mainly for Germany, again which is very well flagged due to the increased issuance, while the other sovereigns and also especially for EU, the conditions would be broadly similar or even marginally better compared to 2025. So net net, it's not that negative picture there. The WAM of ECB issuance has already declined sharply from the issuance WAMs we saw during the COVID era, and it has been continuing declining even between 2024 to 2025.
The WAM of issuance has declined by almost 0.5 years, and we expect a similar gradual reduction in issuance WAM and also proportion of 10 year plus issuance into 2026 also. Okay, thanks. So it sounds broadly, the increase in Germany is expected and there's not really much sense of any wrinkles anywhere else that could cause a surprise for issuance.
Okay, so let's shift focus to SSAs and what you're thinking currently. What's the outlook then for your SSAs from here, do you think? Yeah, it's been a busy publication week for us.
So we, along with the issuance piece, we also did our monthly SSA outlook. And the main theme in the euro space was like we maintain a structural overweight stance in EU, which we have been holding for a while and remain pretty much on the sidelines for the rest of the SSA issuers in the euro space because of less attractive valuations. Like our constructive EU stance has been one of our high conviction views for the past few quarters and which has performed quite well.
And despite that strong performance so far, we still see room for ongoing outperformance as we believe that the potential diversification flows coming from away from investors moving maybe away from USD, but more importantly, coming more into euro area. And we have seen already some data behind that and also which is supportive for EU in my view and also potentially programs like SAFE or future Ukraine funding, which might get approved in the coming years. This all adds to, let's say, the longevity of the EU as an issuer and which again is a positive development for EU.
So these two main factors, along with still attractive valuations, drive our constructive stance and we expect EU to gradually settle somewhere between Austria and Finland, Austria-Finland and Netherlands. So we are somewhere right now just above Austria-Finland. So we have room for further continued gradual tightening on the EU as an issuer.
We also, in the piece, we analyze the seasonality in euro SSA markets going into year-end. We observed on average a modest euro SSA as a cheapening in December and which is most prominent in EU and KfW as an issuer. We also noticed modest euro SSA versus German spread tightening during December.
So something to keep in mind for oil exposures in SSA space in euro SSA because of the seasonal patterns. On dollar SSA spreads, we remain tactically underweight on expensive valuations. We favor European issuers given headline risk related to US policy toward international agencies.
And finally, in sterling SSA, we are running a medium-term cheapening bias on 10-year sterling SSA as a stop spreads. Thanks for that. So that's some interesting analysis there around the seasonality component of SSAs.
So Kiendra, also you've been looking at Scandi markets this week with the updated publication on Swedish and Norwegian views. I guess if we look at Scandinavian rate markets, there are different profiles priced for the Riksbank and Nordje Bank in terms of monetary policy. So first of all, if you look at Swedish rates, do you agree with the policy expectations priced into the front end?
Hi, Francis. Yes, as you mentioned, diverging profiles are priced in for Riksbank and Nordje Bank. Just to highlight, we are pricing broadly unchanged level of policy rates in Sweden by the end of 2026, whereas around 50 basis point of easing is priced in for the NAIB curve.
In Sweden, I think current pricing is in line with the central bank stance, which is an extended on hold. We think that the bar for further cuts is high. Macro data in Sweden has been along expected lines with gradual pickup in activity.
We believe that this will continue to nudge up given the impact of past rate cuts and also the large fiscal easing that was recently announced. Now, of course, optically, this one as a part of the easing, the VAT cut is bad for inflation optically, where we expect core inflation to decline below 1% by mid next year. But that is a temporary thing.
And I think everybody will likely include including Riksbank. So from fundamentals, I agree with the current pricing. However, I think that some downside is premium could gradually get priced into the curve and does believe that long duration positions in Sweden at the front end, say, you know, targeting the 2Q26, 3Q26 sector offer, in my view, asymmetric upside towards lower ends over a hiking is obviously out of the question in that part.
In fact, we believe that there is scope of some outperformance at the front end of the cross-market basis versus Euribor, versus Nibor and versus SOFR as well. Okay. So a bit of potential downside for yields in Sweden, maybe a bit limited, but what about in Norway?
I mean, the terminal rate that's priced around about three and a half percent, does that look reasonable with our forecasts and what do you think? Yes. As I mentioned, you know, a cumulative 50 basis point of easing is by end 2026 is currently priced in the Nibor curve.
You can argue that the Nordisk Bank has an easing bias of around 125 basis point per year easing over the next two, three years. But I think the central bank will eventually disappoint in not delivering these cuts. With growth being strong, labor market remaining very solid, currency still weak and inflation well above target, there is really no reason for Nordisk Bank to cut rates further if we stick to their recent reaction function.
Nevertheless, I think a terminal rate pricing of around 3.75 would be reasonable to me. However, with that level around 3.50, I think it is too low. So in my view, Nibor front-end yields are likely biased higher and we think they should underperform Strybor yields, whereas I mentioned earlier, too little easing is priced in.
So, Francis, you know, it has been a busy week for the research group, they're publishing two notes. I did Scandi Monthly and you did the Monthly Inflation Outlook. So how do you view inflation break-evens in the euro area and UK after the recent nominal market moves?
Yes, I think actually, it's probably one part of the rates complex where we've seen more limited reactions, particularly in Europe, if you look at break-evens, there's been actual relative stability, obviously against the backdrop of ongoing disinflation. So when you look at what's priced into the market, it's broadly in line with our expectation of headline HOSVP to continue falling and to decline to around about an average of 1.6% OIA over 2026. And I think when you look further out the curve, it's a story of just real stickiness.
I mean, intermediate European break-evens haven't really shown much relationship with nominal yields, haven't shown much relationship with currency or any risk-on, risk-off dynamic and have been stuck in a relatively narrow range. So for example, 5.5 year HICP is just below the 2.10% level and is pretty consistent with markets pricing limited inflation term premium certainty around these 2% target. So I don't think it's a huge amount to sort of see or say there in terms of European inflation.
I mean, in the UK, there's a lot of focus on the CPI print for September next week. We expect headline at 4%, which should be the peak in inflation. That's pretty much consensus across market and also where the Bank of England sees it.
And I think probably the debate will be around what happens to core services, CPI levels still quite elevated. There's still a bit of, let's say, stickiness in how core service inflation has been declining. But I think if there is any downside surprise in the service components of CPI next week, I'm not sure it'll be large enough to massively shift market views earlier around when the potential next BOE cut could come with about 25 base points, so pretty much fully priced for next February.
So if you look at inflation markets, yeah, front-end break-evens look a bit low versus maybe where inflation can realise. But I think we've just got to be wary here of fading or taking a strong view on the front-end given there's a lot of uncertainty on what fiscal measures could be included in the autumn budget at the end of November, and maybe markets initially got a little bit over excited in terms of potential changes that could be inflationary, such as VAT, which probably are much less likely in our view. I guess if we look further out, intermediate break-evens probably look okay at these sorts of levels, but the curve is still quite steep and they do look quite high relative to front-end break-evens.
So maybe there's some potential there for intermediate break-evens in the UK to modestly decline. So we've covered a lot of topics. Thank you Aditi and Kigendra.
That's all from us. And thank you for listening and stay tuned for more updates on the fixed income space here on At Any Rates, JPMorgan's global research podcast series. This communication is provided for information purposes only.
Please read the JPMorgan research reports related to its content for more information including important disclosures. Copyright 2025, JPMorgan Chase & Co, all rights reserved. This episode was recorded on the 17th of October, 2025.