FIG primary issuance to go one better after phenomenal 2025 but widening looms

Although 2025 has been a phenomenal year for the European financial institutions bond market, for both issuers and investors, this equilibrium is likely to change with spreads on unsecured debt now firmly expected to widen, according to GlobalCapital’s survey of FIG market expectations for 2026.

The primary market for FIG issuers in Europe got better and better during 2025. Investors were eager to book new unsecured paper despite ever-tightening valuations, with inflows pouring into the asset class, thanks to interest rate cuts on both sides of the Atlantic.

Spread widening — and even a prolonged correction — had been anticipated for most of 2025. Although this did not materialise for any extended period, except during the aftermath of April’s US tariff announcements, it drove bank issuers to pre-fund at the end of 2024 and to front-load issuance at the start of 2025.

But, a year later, sentiment has shifted. At the end of 2025, funding was driven mainly by “the uncertainty of spread evolution,” says Alberto Maria Villa, head of FIG syndicate at UniCredit.

This is because in 2026, “the market is anticipating a potential drift wider in spreads rather than a market accessibility issue,” he adds.

As spreads tightened throughout 2025, issuers of all ranks locked in historically advantageous levels, resulting in financial institutions printing more than €294bn of unsecured public debt in the single currency from January until the end of October, according to GlobalCapital data. This volume includes sub-benchmark deals as well as those from borrowers in central and eastern Europe (CEE).

The issuance volume during the period was split into €218.5bn of senior bonds, almost €50bn of tier two and €26bn of tier one capital. For the same period in 2024, senior issuance was €197bn and subordinated debt sales totalled around €64.5bn.

Looking at the projected volumes for 2026, just under 45% of survey respondents expect about the same volume of senior supply, with a third anticipating less than 20% of volume growth.

Banks were able to refinance well ahead of call options thanks to running tender offers in tandem with new issues, resulting in heavy amounts of subordinated issuance. But now, only a quarter of responders expect similar volumes to be repeated in that part of the capital stack.

Another quarter of respondents see capital issuance rising but by less than 20% year on year, with about 38% saying volumes will fall but by less than 20% versus 2025. Almost 13% say subordinated capital issuance will fall by more than 20% in 2026, which contrasts with no respondents predicting that there will be a similar drop in senior issuance.

European insurance companies were an integral part of the subordinated market of 2025. They jumped into strong demand for higher yielding credit, as they aimed to refinance legacy capital ahead of the grandfathering rule expiring at the end of 2025. They issued about 28% of total euro subordinated FIG supply and around 27% of tier one volume printed between January and October 2025.

This heavier than usual presence split opinion in the survey. Around 13% of participants think that insurers will print more subordinated debt in 2026 than in past years with a similar number expecting higher issuance of both subordinated and senior bonds. But 50% think that their combined unsecured funding will remain roughly the same with almost 19% expecting it to be lower.

The majority of banks’ funding is expected to be concentrated in senior bonds in 2026, according to the survey. About 41% of respondents see non-preferred as the most focused asset class having the most focus, followed by 26% voting for the senior preferred layer.

Tier two notes received 10% of votes with the smallest share of under 9% going for AT1s.

Although covered bonds took 15% of the votes as the biggest focus, Villa highlights that “there is not really a rush to do covered bonds at the moment as the demand and supply outlook looks benign, even more so taking into account coupon payments”.

Isaac Alonso, head of debt capital markets for Germany, Austria and Switzerland at UniCredit, points out that not only 2026 redemptions but those in 2027 “will influence 2026 issuance — and not just on covereds but also on senior bonds”.

The combined annual maturities, which he calls “a peak double year” for covered bond redemptions, “will determine the exercises banks choose to undertake in markets”.

UniCredit forecasts net euro public covered bond volume in 2026 to be lower than in 2025, expecting €165bn-€170bn of gross supply.

It expects €230bn-€240bn of senior preferred and non-preferred debt, €35bn in tier two and €25bn-€30bn in AT1s.

Meanwhile, 72% of survey respondents expect banks to focus their senior issuance in the belly of the curve with the remainder voting for the long end.

Survey respondents overwhelmingly anticipate unsecured spreads to widen from their multi-year lows, which for some asset classes and issuers have reached tights not seen since the Covid-19 era when central banks flooded markets with liquidity.

More than 73% and 80% of respondents think that senior preferred and non-preferred spreads, respectively, will have moved out by the end of 2026 compared to levels at the end of 2025.

It is even more striking for subordinated debt where not a single respondent thinks that spreads will remain unchanged. A small number said it could be the case for senior bonds, however.

Instead, almost 87% of responders saw widening for tier two bonds and more than 93% for the AT1 layer.

Looking at the number and type of trades in October 2025, Villa notes that “there is not the same extent of pre-funding as in 2024”. He attributes different reasons for pre-funding. “[There is] clearly a tactical approach to lock in the lower spreads, unlike last year when it was about having the option to have the funding in the face of uncertainty,” he says.

An important driver of the high volume of euro capital issuance in 2025 was banks’ ability to use liability management exercises (LMEs) as part of their refinancing work. Sources attribute the ECB’s more relaxed and quicker approach to granting approvals for banks to call their capital deals as the major reason behind this.

“In capital funding, LMEs were an overarching theme in 2025 that we expect to be the theme again in 2026,” says Villa.

In 2026, LMEs are likely to remain the mainstay of capital issuance strategies. Despite the spread widening expectations, banks will be looking to refinance capital that was mainly issued in 2021.

“Issuers will choose to vastly refinance spread instruments with LMEs, especially tier twos, where the spread difference between the old and the new capital are high enough as the LMEs will mitigate the double carry,” says Villa. “When it comes to AT1s, a lot of banks will consider LMEs, even those that were reticent to do one in the past.”

Financial institutions’ access to capital remains key, but they have also improved their capital structures beyond the traditional bond markets.

“Significant risk transfer (SRT) has been an important market that has been growing in Europe, and also for UniCredit,” says Alonso.

The market for SRT made 2025 “one of the most active issuance years, if not the most active one,” he notes, “as that instrument has become part of a bank’s capital financing equation”.

He underlines that the “high usage of SRTs has mitigated banks’ need to fund balance sheet growth and, in particular, the risk-weighted asset growth. This has contributed to the capital buffers of European banks”.

Although the US imposition of tariffs on April 2 sparked a big bond sell-off, this was not unique to the FIG market. In fact, while government bond yields continue to creep up due to expected higher issuance, demand for credit has been strong.

In Europe, that has been linked to the steadiness of the banking system. “The baseline outlook for the European banking sector for 2026 is stable as we see lots of resilience among the major banks,” says Olivier Panis, associate managing director at Moody’s, who heads the ratings management for major European lenders.

European banks have had limited lending growth in 2025 and large chunks of their funding needs were met earlier in the year, before the tariff announcement.

“Trade barriers and geopolitics turned into headwinds to banks’ operations this year and could also turn problematic in 2026, but so far this year, it has been a surprisingly good market despite all these developments,” adds Panis. “Next year we still see resilience from banks but a slowing market due to lower global economic growth.”

European banks may enjoy a slight increase in lending, based on Moody’s projections, as it expects 2026 economic growth in the region to improve to 1.3% from 1.2% in 2025.

UniCredit also sees European banks growing their loans business in 2026, but this will likely be “just moderate to flat loan growth”, says Villa, although he also adds that deposit growth “will outpace loans in the majority of jurisdictions”.

Moody’s predicts the US economy expanding 1.8% versus 2% the preceding year. Growth in China and India will be higher, but both countries are expected to slow, with China growing 4.5% from 5% and India 6.4% from 7%.

Deteriorating global macroeconomic conditions are seen as the second biggest risk that could impact the FIG market in 2026, according to GlobalCapital’s survey.

Macroeconomic concerns received almost 30% of the votes, but it was a severe stock market correction or a crash that topped the list.

But not all risks are obvious. “Natural disasters, such as extreme weather events, can be serious problems for banks,” warns Panis.

Yet, he highlights that “the single biggest risk for European banks is a low probability event,” one that can turn into a “major geopolitical shock”. He highlighted the Russian invasion of Ukraine in 2022 as one example.

While senior FIG bankers saw an equity sell-off as a danger to primary bond market activity, macroeconomic deterioration could have a wider impact on banks’ operations. To combat the economic weakness from US tariffs, the ECB cut interest rates more aggressively than the Federal Reserve did in 2025.

Lower interest rates can reduce banks’ profitability. Interest rates in Europe are expected to keep “supporting banks’ credit quality”, says Panis, but “there will be a slight decrease in net interest margins in Europe”.

The rating agency sees lower net interest margin decline among French banks but a sharper decline for those operating in the UK, Poland and Spain.

Meanwhile, the health of the European FIG market can often be inferred from the market access of lower tier and less frequent bank issuers. With 2025 a strong year for smaller issuers, half of survey respondents expect lower tier banks to have the same level of market access in 2026.

However, it was notable that the remaining votes were equally split between a better and a worse outcome for that group in 2026.

Opinion was also split on the regions that may be affected. Some 32% of voters see CEE banks having better access in 2026, although almost 45% say they are the group most likely to suffer worse access.

It is notable that Western European lenders stand out (22%) together with those outside Europe (33%) as those expected to face worse market access ahead.

The diverging global regulatory landscape will also affect the performance and profitability of banks.

Thanks to accelerating local financial deregulation, US banks are most likely to benefit from changes in regulations according to around 45% of survey participants. They were followed by almost 23% voting for UK lenders. Those in the European Union, Japan and China all received equal votes, attracting 9% of respondents.

There was novelty in the environmental, social and governance (ESG) market, where around €50.5bn of euro public bonds were issued between January and October. These included five trades from three banks under the European Green Bond Standard that was introduced in the FIG market in February.

As this volume was just a touch higher than what borrowers raised in the same period of 2024, market participants expect a slight decrease of labelled bond sales in 2026.

While just under 30% expect unchanged volumes of ESG-labelled debt, the same number foresees an increase of less than 20%. Nearly 43% anticipate a drop of less than 20% compared to 2025.

The strong trend in mergers and acquisitions in the European banking sector is expected to remain a constant, with almost 73% of the respondents voting in favour of there being more in 2026. None expect this to decelerate.

And in terms of currency choices, after the euro and US dollar markets, European banks are most likely to turn to the sterling market, according to 57% of the survey respondents. Despite its growing relevance — including AT1 capital raising — the Australian dollar market came in as the second choice, collecting around 36% of votes.