European 2Q25 Outlook Update: Stuck in the Middle

European corporate credit started the year on a strong foot, decoupling from other developed markets through mid-March on ECB policy loosening and fiscal stimulus expectations. More recently, positive momentum has caved to the escalations of US tariffs and global trade wars.

Over the past two weeks, Euro IG & HY spreads have repriced significantly wider following the US announcement of sweeping global tariffs on 2 April. IG spreads recently at 124 bp, nearly reached our original YE’25 target (130 bp), and HY spreads gapped out past our initial forecast (400 bp target) to as wide as 429 bp, confirming our argument