The quarter’s merger, acquisition and buyout activity has been the busiest for years and we are on track for 2025 to be the next biggest in value since 2021. The recent record $55bn buyout of Electronic Arts, at an all-time high share price, was in stark contrast to the $10bn Walgreen Boots transaction in August at a depressed share price, prompting ‘top of the market’ commentary. The EA deal was brokered by President Trump’s son-in-law and involved Middle Eastern funds who have never been particularly ‘price sensitive’. The deal was a triumph for bank lending over private credit as JP Morgan provided the entirety of the financing, lending $20bn. Worries about strains in opaque private credit remain and the recent bankruptcy of First Brands hasn’t helped.

Tariff fears re-emerged as Trump slapped 100% tariffs on some pharmaceuticals and 25% on big trucks. More recently, he announced an additional 100% tariffs on China and export controls on ‘critical software’ in response to Chinese restrictions on the export of rare earth minerals, so this saga is a long way from being over.

Whether the Chairman of the Federal Reserve, Jerome Powell, will hang on for his final months of tenure remains to be seen but we know his President doesn’t want him to, calling him a ‘moron’ for holding rates. The race to succeed Powell has lined up a fine array of Presidential stooges so the White House is on track to exert fiscal dominance over the Fed and force rate cuts. The first stooge is Governor Miran, who voted for a half point cut at the last FOMC meeting, they delivered 25bp. The President thinks that rates should be at 1% to reduce debt costs and stimulate economic activity.

Another kind of dominance has shown itself in Trump’s America: If the figures don’t suit, like weak payroll numbers, sack the messenger - the fate of the head of the Bureau of Labour Statistics. Now, with the US Government shutdown, we have no economic data being released and specifically no September jobs report making the Fed’s job even harder. 

Stock indices haven’t paid much attention to any of this, until recent tariff actions but there are real fears, expressed by many central bankers and prominent investment bankers, that there is over-valuation in the AI sector. Certainly, we are seeing similar behaviour to previous such episodes where highly valued equity is used to perform a raft of transactions of an unsettling circular nature (e.g. Nvidia investing $100bn into OpenAI, mainly equity, who then buy their chips). JP Morgan produced some penetrating analysis pointing out that AI-related debt forms 14% of the US$ Investment Grade Index ($1.2tn), larger than that of US banks as a sector. This doesn’t count the funds extended for AI capex by private credit funding. Over the quarter, US treasuries remained volatile, and the yield curve ‘steepened’ - where short-end yields fell, and longer-dated yields rose (as in the UK).

The election of economic stimulus advocate Sanae Takaichi as leader of Japan’s leading party also caused long dated yields to spike in Japan. China and Russia keep getting closer, politically and economically, and this has led to support for the reintroduction of ‘Panda’ bonds - where Russian energy companies issue bonds in renminbi to Chinese investors.

EU exports to the US have fallen by 10%, with Germany the hardest hit as a major exporter. This added to a sluggish German economy (contracting by 0.3% in the last quarter), but forward-looking indices are encouraging. Low rates and huge government spending will feed through at some point. Christine Lagarde, President of the European Central Bank (ECB), indicated that they were at the end of their cutting cycle and Dr Nagel, President of the Bundesbank and ECB council member, says the outlook for inflation is ‘very stable’.

French sovereign yields suffered as President Macron lost another Prime Minster in short order and the chaos in French politics continues. The French fiscal outlook remains fragile but Asian investors still buy their debt alongside Germany’s due to liquidity. This could change if we see more rating downgrades following on from the Fitch downgrade, potentially either this month from Moody’s, or next month from S&P, as there would likely be forced selling from Asian institutional investors. On a more constructive note for the Eurozone, energy costs have dropped to pre-Ukraine invasion levels amidst a dramatic rise in LNG imports (as opposed to previously relied upon pipeline supply).

Although headline UK GDP numbers are not inspiring, the services sector has grown 1.5% year on year. The Bank of England held at 4% after their recent 25bp cut (after a re-vote) and, as anticipated, reduced the pace of Quantitative Tightening from £100bn to £70bn. The largest reduction looks to be at the long end, hoping to reduce volatility but the fiscal worries that have pushed thirty-year yields over 5.5% haven’t gone away. Governor Bailey indicated that more cuts are on the way but “the timing and scale of cuts are more uncertain than before” with inflation still just shy of 4%. UK growth in Q2 fell to 0.3% as opposed to 0.7% in Q1 with front-loading ahead of tariffs being a contributor. Whatever the size of fiscal shortfall Chancellor Reeves faces, it is large, and no one knows how it will be filled. The Treasury now has a narrative of telling business to talk up the UK economy, this is from a government that actively talked down the UK economy after the 2024 election saying Britain was ‘broken’.

After a brief summer lull, sales of new issues in the US investment grade primary market hit a record high of $172bn in September, amid high demand. We continue to see strong demand for credit across all currencies. Credit spreads have recently backtracked a little but from a very tight level, although sterling has remained the most stable and is well supported.

The full Quarterly Review is available here. 

October 2025

Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.