Credit Strategy - Europe: Credit market liquidity: macro tools take centre stage

Research evidence excerpt

Credit Strategy - Europe: Credit market liquidity: macro tools take centre stage

Accessible version

Credit Strategy - Europe

Credit market liquidity: macro tools take

centre stage

Credit Analysis

Macro instruments are now central to liquidity provision 10 June 2026

Credit market liquidity has become increasingly “macro‑driven”, with CDS indices, ETFs Credit Strategy

and portfolio trading taking over as the primary channels for risk transfer. This reflects a Europe

structural shift in market functioning, where constrained dealer balance sheets and

Ioannis Angelakis

growing buy‑side assets have pushed investors towards instruments offering greater Credit Derivatives Strategist

scalability, speed and cost efficiency. As a result, liquidity is no longer defined by MLI (UK)

+44 20 7996 0059

individual bond depth, but by the ability to transact risk efficiently at a macro level. ioannis.angelakis@bofa.com

Barnaby Martin

Credit StrategistFMFs anchor demand, but their influence is evolving

MLI (UK)

Fixed maturity funds (FMF) have remained a key structural buyer of credit, anchoring barnaby.martin@bofa.com

front-end demand and reinforcing a persistent buy‑the‑dip dynamic. Their yield Mohit Agarwalla

advantage relative to deposits and money market instruments has supported steady Credit Strategist

inflows, improving secondary market resilience. However, the backdrop in 2026 has mohit.agarwalla@bofa.com

started to shift, with higher “risk‑free” yields reducing the attractiveness of credit and

prompting a more cautious stance on both allocation and duration.

ETFs and portfolio trading are reshaping market access

The growth of ETFs alongside portfolio trading has fundamentally altered how investors