Global central banks broadly maintained a cautious “wait-and-see” stance last week, though with a clearer hawkish tilt emerging as energy-driven inflation risks intensify. The Federal Reserve held rates at 3.50–3.75%, in line with expectations, with Jerome Powell emphasising that further “progress on inflation” is required before any easing. While the median dot in the Summary of Economic Projections continues to signal one rate cut this year, upward revisions to inflation and firmer growth assumptions point to a more cautious policy path. Notably, only Stephen Miran dissented in favour of a cut, underlining broad committee consensus. Powell’s tone suggested that while cuts remain more likely than hikes, the case for easing has weakened.

In Europe, the European Central Bank left rates unchanged, with Christine Lagarde stressing vigilance around second-round inflation effects. Markets have increasingly priced the risk of a near-term hike should energy shocks persist. The Bank of England delivered a notably hawkish hold, with a unanimous vote and a shift away from an easing bias, reinforcing expectations that policy could tighten if inflation expectations drift higher.

In Asia, the Bank of Japan kept rates steady but signaled that further tightening remains firmly on the table. Elsewhere, the Swiss National Bank and the Riksbank also kept their rate unchanged, with the former highlighting its readiness to intervene in FX markets amid Swiss franc strength.

Overall, central banks are increasingly wary of inflation persistence and future markets’ expectations have been pricing in a rising probability of a hawkish pivot in the weeks ahead, with potential rate hikes in Europe and even possibly in the US by the end of the year. Those expectations continue to fluctuate along with the evolution of the geopolitical situation in the Middle East and oil price movements.

Credit

USD and EUR corporate credit spreads, across both investment grade and high yield, ended last week effectively unchanged. This resilience came despite a sharp rise in government bond yields, driven by increasingly hawkish central bank expectations amid higher energy prices.

Brent crude closed at $112.2 per barrel, its highest level since June 2022. In contrast, Dutch TTF gas prices increased only moderately to €59/MWh last Friday, before easing back to €54/MWh on Tuesday, well below the 2022 peak of €341/MWh.

French credits are expected to be more resilient than corporates in neighbour countries, reflecting the country’s energy mix predominantly nuclear, a dynamic already observed during the 2022 energy shock.

That said, negative total returns across credit markets last week were entirely driven by the rise in Treasury and Bund yields. As a result, yields moved higher across the board: USD investment grade reached 5.2%, US high yield 7.5% (the highest since June 2025), while EUR investment grade rose to 3.7% and EUR high yield to 5.9%.

At the sector level, real estate underperformed, as expected in a rising yield environment.

EUR investment grade and high yield funds recorded another week of outflows, after 36 consecutive weeks of inflows. Money market funds also saw outflows.

In corporate developments, UniCredit announced a full takeover bid for Commerzbank. The transaction is hostile and widely viewed as unlikely to succeed.

Private credit remains firmly in focus.

Several private credit funds, including Ares Strategic Income Fund, have capped quarterly redemption at 5%. This highlights a structural tension: semi-liquid fund structures are often misunderstood. Private credit loans are illiquid by design. Syz Blog: Private credit under fire: why the headlines tell only half the story

Among European banks, Barclays and Deutsche Bank show the highest exposure, at approximately 5.5% of total loans, but still very manageable.

In the U.S., loans to non-depository financial institutions (NDFIs) average 6.4% across major banks, ranging from 0% at BNY Mellon to around 10% at Wells Fargo. These NDFIs include private credit funds, business development companies (BDCs), and hedge funds that originate and hold loans outside the traditional banking system.

Ultimately, as credit spreads tend to follow earnings over time, a more challenging environment is likely to lead to greater dispersion across companies in the coming months.