Crédit Mutuel AM: Monthly commentary on subordinated debt

17 november 2025

Obligaties

By Paul Gurzal, Co-Head of Fixed Income and Jérémie Boudinet, Head of Financial and Subordinated Debt, Crédit Mutuel Asset Management

Market Environment

October turned out to be much more turbulent than the simple monthly performance of subordinated debt would suggest. While AT1 CoCos were able to perform well yet another month (+0.6%), as did Corporate Hybrids (+0.6%) and subordinated insurance debt (+0.5%), the Euro High Yield market was weak with a performance of -0.05% over the same period, showing fears of a resurgence of idiosyncratic risks in the ‘B’ segment. (Source: Bloomberg, 31/10/2025)

Perhaps this is because the atmosphere feels like a “cockroach hunt”, to echo the words of JPMorgan Chase CEO Jamie Dimon, who continues to make headlines in the financial press.

We see a growing disconnect between the occurrence of certain events and their media coverage, and even the reactions on the markets, which we deem excessive, such as the potentially fraudulent bankruptcies of Tricolor and First Brands; BNP Paribas losing a lawsuit in the United States that reignites concerns of significant impacts; and provisions for credit losses tied to a borrower for two U.S. regional banks.

We see two common phenomena: according to us, the financial impacts and risks are not exceptional and seem entirely manageable, yet these are stories that resonate with current recurring themes, the sharp rise in corporate lending (through private debt and leveraged loans), which may raise concerns about inadequate due diligence and revive old fears (legal risks, U.S. commercial real estate).

The observation : Markets are more unsettled, despite a satisfactory results season as a whole, but where disappointments have been severely punished in the equity markets, and where there are growing concerns about a potential Artificial Intelligence bubble. What is the link between subordinated debt and US equity markets? Currently, the three-year correlation between AT1 CoCos EUR and the S&P 500 stands at a record 0.97. (Source: Bloomberg, 31/10/2025)

More broadly, correlations are at historical levels between high beta credit and equity markets. This does not mean that a sell off in European or US equities would immediately have an impact on subordinated debt, however there are strong reasons to believe this correlation will persist across different market scenarios.

What is reassuring, however, is the excellent resilience of the AT1 EUR (+27 bp spread widening between 30/09 and 14/10 before retracing a good part of it) compared to the ‘B’ corporate segment (+76 bp over the same period), highlighting the resilience of the banking sector in the current environment.