A Wave of Securitizations is Reshaping European Credit Markets
With rates poised to fall, liquidity piling up and new asset classes emerging, an overhaul of EU rules is helping fuel a renewed boom in securitizations.
Europe’s securitisation market is entering 2026 with the kind of momentum it has not seen in nearly a decade. A deep reservoir of liquidity, combined with investors’ need to lock in yields before central banks loosen policy, is fuelling a wave of issuance across both public ABS and private structures. Bank CFOs, ALM directors and institutional fixed‑income investors, long constrained by tepid deal flow and strict regulatory frameworks, now find themselves navigating a market that is busier, broader and in many ways more inventive than in previous cycles.
Although economic growth across the continent remains uneven, the overall macro environment is proving more supportive than many analysts had anticipated. Spain remains one of the few clear outperformers, growing close to 2 per cent, while the UK and the Netherlands, posting figures just above 1 per cent, are settling into a more subdued trajectory after several years of strong results. The real surprises are coming from Europe’s traditional heavyweights: Germany, France and Italy are all on track to beat prior expectations, supported by firmer industrial activity, improving consumer sentiment and steady job creation. Inflation, once the region’s greatest concern, is contained; unemployment is easing in most jurisdictions, at least for now.
Below the surface, however, there is a new source of uncertainty. The accelerated adoption of artificial intelligence across major economies is expected to disrupt labour markets more visibly in the second half of the year. Policymakers insist the shocks will be manageable; investors are less unanimous. But for now, labour market strength continues to underpin household credit performance, a key driver of securitised asset quality.
Europe’s securitisation market enters 2026 with its strongest momentum in years, lifted by abundant liquidity and investors racing to secure yields ahead of expected rate cuts. Growth across the continent is uneven but firmer than forecast, with major economies surprising to the upside as inflation eases and jobs hold steady. Concerns remain over potential AI‑driven labour disruptions later in the year, but for now resilient employment continues to support household credit and the performance of securitised assets.
Monetary policy in 2026 will give the fixed‑income market its most decisive push. The Federal Reserve is expected to cut rates three times, 25 basis points each. The Bank of England is likely to reduce its benchmark by close to a full percentage point. Only the ECB, concerned about lingering price instability in parts of the bloc, is signalling a steady hand. For investors, the implication is straightforward: the first half of the year presents the best opportunity to capture yields before spreads inevitably compress, and demand for securitised products is responding accordingly.
Among collateral types, mortgage‑backed securities continue to dominate the conversation. The UK market, which experienced a sharp rise in 60‑day arrears during 2023, from 0.5 per cent to nearly 1 per cent, has staged a full reversal. Arrears fell back to pre‑spike levels in 2024 and remained stable through 2025, restoring confidence among arrangers and buyers. Continental Europe shows a similar pattern, though with notable variations. Spain saw arrears climb from 0.8 to 1.5 per cent and plateau for nearly two years, only beginning to soften in the second half of 2025. Other markets, Italy, France, Germany and Ireland, are now expected to post lower NPL ratios in 2026, giving RMBS a broadly positive outlook through 2027.
Auto ABS is showing a more nuanced picture. Spain, Germany and France are all projected to see arrears fall below 0.5 per cent, confirming the resilience of the asset class. The UK is proving stickier. The electric‑vehicle transition, while delivering strong performance metrics, has injected an element of uncertainty into traditional auto‑loan portfolios. Yet most investors anticipate that returns will remain attractive, particularly with issuers willing to strengthen structures through higher reserve levels or enhanced advance rates to counter potential shortfalls.
The consumer‑loan segment presents the sharpest contrast. Italy and Germany have registered an abrupt rise in 60‑day arrears, jumping from below 0.5 per cent to around 1.25 per cent, an unusually rapid deterioration for these markets. Nonetheless, the underlying economic narrative is turning in their favour. Both economies are benefitting from robust industrial activity, the reconfiguration of global supply chains, rising defence expenditure and an uptick in production reshoring initiatives. These dynamics are expected to support employment and income stability, mitigating the worst‑case scenarios for consumer‑credit performance. Spain and France, meanwhile, continue to maintain NPL levels below 0.5 per cent, reinforcing their reputation as consistent performers in this space.
Supply is keeping pace with demand. Real‑estate securitisations are expected to surpass EUR 40 billion in issuance this year, supported by sizeable undeployed capital waiting to be placed. Across the broader ABS market, volumes tell an even clearer story: EUR 43 billion was issued in 2024; nearly EUR 25 billion was deployed in just the first half of 2025. The full‑year total is likely to exceed EUR 50 billion, with 2026 shaping up to match or outpace those levels.
Expected rate cuts from the Fed and Bank of England are driving investors to secure yields early, boosting demand for securitised products even as the ECB stands pat. RMBS performance is strengthening across major markets, auto ABS remains resilient despite UK EV‑related uncertainty, and consumer‑loan credit is mixed, with rising arrears in Italy and Germany offset by improving industrial and labour‑market conditions. Spain and France continue to post low NPLs, and issuance is accelerating, with RMBS and ABS volumes set to surpass the strong pace of recent years.
One of the most compelling developments within the sector is the rapid emergence of so‑called esoteric ABS. Buy Now Pay Later structures, once viewed as an experimental niche, are evolving into a fully recognised asset class expected to reach roughly EUR 20 billion in issuance in 2026. Private securitisations, valued for their higher yields and stronger risk protections, are attracting a wider set of investors. And new forms of structuring are pushing the boundaries of what can be financed through securitisation. A recent deal involving Meta’s digital‑infrastructure assets, blending elements of project finance with the securitisation of rental income streams, is being closely watched as a potential template for future hybrid transactions.
Still, risks remain. Political volatility and geopolitical tensions, including the recent concerns over Greenland, could prompt some investors to hesitate, though many argue that delaying deployment poses its own risks as yields are likely to fall later in the year. Transparency failures such as prior European “Tricolor’s bankruptcy‑type” events could resurface, potentially prolonging due‑diligence timelines and slowing deal execution. Natural disasters remain the perennial wildcard.
Regulation, however, is moving in a direction the industry broadly welcomes. At a recent Moody’s conference, Shaun Baddeley of AFME detailed ongoing negotiations in Belgium to revise the EU’s securitisation framework. After the Commission’s review in June 2025 and the Council and Parliament’s response in December, parliamentary discussions beginning in January 2026 are expected to culminate in a final proposal by early May of this year. The overarching goal is to modernise the framework, support financing of the real economy, and narrow the stark gap with the United States, where CLO issuance stands near USD 400 billion compared with roughly EUR 50 billion in Europe. Regulators are increasingly aware that the bulk of forthcoming financing needs, infrastructure, technology, energy transition, cannot rely solely on STS‑aligned structures, and capital treatment will need to evolve accordingly.
Taken together, these factors point to a constructive outlook for 2026. Both public and private securitisations stand to benefit from plentiful liquidity, strong appetite for yield, and improving collateral performance across most major asset classes. Private transactions, in particular, are poised to offer investors above‑market returns supported by stronger covenants and enhanced credit protections, while expanding access to sectors such as BNPL, trade finance, SME lending, auto finance, leasing and infrastructure‑linked real‑estate projects. For investors seeking scale, diversification and robust risk‑adjusted performance, the securitisation market is likely to remain one of the most compelling segments of the fixed‑income universe in the year ahead.
