BAKU, Azerbaijan, October 22. Political
uncertainty in France and the conflict in the Middle East could
trigger periods of volatility in financial markets in 2027.


This was stated in ING’s report, “2027 Credit Instruments
Outlook.”


According to the report, asset swap spreads have initially shown
resilience to geopolitical instability and related economic changes
this year. Despite some volatility in March following the outbreak
of the conflict between the U.S., Israel, and Iran, spreads quickly
recovered and approached historic lows.


“However, further escalation of the conflict in the Middle East
and the lack of a clear path to resolution could increase pressure
on spreads.


In addition, budgetary and political issues in France,
volatility in the spreads between French OAT government bonds and
German Bunds, as well as broader fiscal risks in Europe, have
recently led to a renewed widening of spreads.


The combination of political uncertainty in France and the
conflict in the Middle East could lead to periods of market
volatility in 2027. However, analysts do not expect these factors
to have a significant negative impact on the supply of bank bonds,"
the report states.







Furthermore, the report notes that, depending on when such
periods of widening spreads occur, financial institutions may show
less interest in raising funds in advance to repay obligations
scheduled for 2028.


According to the ING report, the volume of euro-denominated bank
bond issuances is expected to reach 450 billion euros in 2027: “Net
supply will amount to 57 billion euros, compared with 89 billion
euros in 2026.”


“According to our estimates, the volume of covered bond issuance
will total 185 billion euros, including 180 billion euros in
benchmark-sized issues, some of which are floating-rate, and 5
billion euros in smaller-sized issues. This is 5 billion euros less
than our forecast for 2026. The decline reflects the pre-funding
already carried out by issuers this year in preparation for a
historically high volume of redemptions.


In addition, forecasts for mortgage lending next year point to
stagnation, which will to some extent limit further growth in the
issuance of covered bonds. At the same time, as work on the
securitization package enters its final stage, issuers with high
financing needs may redirect part of their secured instrument
issuance toward securitization for diversification purposes,” ING
reports.


The report emphasizes that growing demand for covered bonds from
foreign investors, against the backdrop of regulatory changes, may
also contribute to broader currency diversification and a reduction
in the share of euro-denominated issuances.