Monthly Bond Commentary - September 2025

September was another month overflowing with geopolitical headlines and bond market catalysts: France replaced their Prime Minister, who subsequently stepped down after only 26 days in the post; the Federal Reserve cut interest rates for the first time this year and is likely to do so again at the end of the October; and the US government was forced into shutdown as the Senate failed to approve a spending bill. Despite the noise government bond yields generally flattened led by a rally in the mid- to longer-end of the curve; this is known as bull flattening.

We also saw risk assets shrug off the headlines as credit spreads in dollars, euros and pounds all set new record tight levels indicating sustained, high demand from investors for assets with regular cash flows and attractive all in yields at a time equity valuations hold close to all time highs. In the 9-months to September we have seen issuers capitalising on these tight spreads increasing bond issuance in an attempt to lock in lower costs of capital. For example, the US High Yield market boosted issuance 12% year-over-year to the highest sum since 2021 and European and US financials issued a record $90.5bn (equivalent) of Additional Tier 1 bonds, beating last years record by 22%.

Given strong fundamentals and prudent balance sheet management we have seen across the majority of the market we believe strong investor demand is well founded and we are bullish on investor prospects in corporate bond markets over the coming year, particularly given equity valuations. Geopolitical noise appears to be the greatest threat for the time being. However, we have also seen the market discounting the impact this will have on multinational corporations with some of the highest rated bonds trading through (at lower yields than) the sovereign, notably in France.