ESM Sovereign Sentiment Survey

Sentiment has deteriorated – but remains positive

After a summer characterised by a global bond sell-off, perceived investor sentiment towards euro area sovereign bonds has declined compared to Q2 2026, but remains positive on net among domestic investors.

Risk focus has shifted from inflation to fiscal

Concurrently, risk focus among participants has shifted from persistent inflation towards fiscal sustainability concerns. Geopolitics remain a relevant concern, and the focus on monetary policy risks has increased.

Yields rose on global, monetary, and fiscal factors

Global factors, euro area monetary policy and euro area countries’ domestic fiscal expansions are perceived to have driven euro area sovereign yields higher in recent months.

A majority expects further spread widening

Views diverged on the outlook for euro area sovereign spreads, Bund yields, and the Bund curve, with a third to half of participants expecting limited further change, a decrease, or tightening ahead.

Different AI risks may have opposite yield effects

The potential consequences of an AI-driven equity market correction and continued AI hyperscaler issuance are seen to pull euro area yields in opposing directions.

Other adverse risks identified include political and electoral risks, often in the context of broader fiscal sustainability concerns in both Europe and the US, as well as political extremism. Geopolitical risks related to Iran and Russia were also mentioned frequently, with consequences for energy supply, inflation, and potentially spread fragmentation across the euro area.

Against the adverse risks identified, investors and intermediaries reported hedging mainly with rates derivatives alongside de-risking (shorter duration, higher-quality sovereigns, SSAs and covered bonds, gold, commodities, and US dollars). Issuers mentioned managing balance-sheet risk via liquidity buffers, maturity, and duration flexibility, funding diversification and fixed-coupon issuance.

Background on ESM Sovereign Sentiment Survey, Q4 2026

The following presents results from a survey of 35 financial market participants active in euro area sovereign bond markets, conducted between 21 September and 9 October 2026.

The sample includes issuers (debt management offices and treasuries), intermediaries, and investors. Sample mean growth and inflation expectations were broadly in line with market consensus, though recession probability (27%) was slightly elevated compared to consensus (20%).