In the absence of any major central bank’s policy meeting last week, several officials delivered remarks amid key data releases that significantly shaped market expectations.

In the US, a heavy data slate drove volatility. Softer prints early in the week, including flat December retail sales, a dovish Q4 Employment Cost Index and weaker growth signals, lifted rate cut expectations by December 2026 to 64bp (vs 53bp two weeks ago).

Federal Reserve officials continued to strike a cautious tone for the time being. Goolsbee said rates could fall further if inflation returns toward 2%, but warned price pressures remain stuck near 3%, particularly in services. Governor Miran highlighted risks of overly restrictive policy and signaled support for gradual balance-sheet reduction. Meanwhile, political uncertainty continues to surround the nomination of Kevin Warsh.

At the European Central Bank, policy makers including Martins Kazaks and Gabriel Makhlouf emphasized a “meeting-by-meeting”approach, citing balanced inflation risks and monitoring the euro’s appreciation.

In the UK, Bank of England Chief Economist Huw Pill argued rates at 3.75% may need to stay restrictive for longer. In Switzerland, the Swiss National Bank faces renewed deflationary pressure amid franc strength, while monitoring tighter bank refinancing conditions.

Credit

Credit spreads widened last week amid heavy new issuance. Encouragingly, Alphabet’s 100-year century bond attracted a whopping orderbook of 9.5 times.

This highlights the ample firepower available to absorb further technology-sector issuance to fund future capex, despite fear about AI obsolescence across software to insurers and asset managers. In S&P’s calculation, Alphabet has capacity to add $180 billion debt within the current AA+ rating. 

This time, lower US Treasury and Bund yields did the heavy lifting and boosted the total returns: +1.1% for U.S. investment grade, +0.3% for Euro investment grade. EUR investment grade funds continued to attract inflows, led by short-term and medium-term funds.

EUR high yield also recorded a five consecutive week of inflows, despite rising market fragility linked to AI disruption narratives. To be clear, European software exposure remains concentrated in single-B issuers, but more than two-thirds of EUR high yield index is now BB-rated, reflecting higher material quality mix than a decade ago.

In bank subordinated markets, ING surprised investors by calling a EUR Tier 2 bond at the first coupon reset date, which is later than the first call date. It introduced a new extended call risk. This challenged market convention, as bank subordinated bonds are typically priced to the first call date.

Looking ahead, U.S. consumers are set to benefit from the One Big Beautiful Bill fiscal stimulus, with economists expecting front loaded U.S. GDP growth this year. That in turn should support EUR high yield, which historically shows a stronger correlation to U.S. macro momentum than to euro-area data, an estimate by Bank of America.