- Europe’s path towards strategic autonomy is opening up new opportunities for bond investors across several sectors including defence, energy and technology
- Increased government spending and policy support are strengthening the outlook for many issuers in these key areas
- There is scope for diversification across sectors, regions and issuers, but investors should take a selective, bottom-up approach
The geopolitical landscape has undergone a significant shift in recent years, with global cooperation and multilateralism giving way to a more fragmented world.
On the back of global geopolitical tensions and the need to remain economically competitive, sovereignty and domestic resilience have become central to national policy agendas.
For fixed income investors, this presents potentially attractive opportunities, especially within the context of Europe’s current strategic drive towards autonomy.
Europe is aiming to grow its economy while safeguarding its own interests, reducing its dependency on other nations and protecting itself against global threats and external shocks, while at the same time strengthening its position in key sectors and industries.
To achieve this, it is investing significantly across defence, energy and technology, as well as other sectors. Policymakers are allocating unprecedented sums, both at a European Union and country level.
Fresh funding
Based on our estimates, Europe plans to allocate more than €1.5 trillion in investments by 2035 to strengthen its autonomy.
This substantial funding encompasses the Readiness 2030 defence budget, Germany’s €500 billion infrastructure fund announced March 2025, as well as investments in clean energy aimed at both energy independence and decarbonisation, and the European Chips Act, which seeks to double Europe’s share in semiconductor manufacturing.
These schemes, and others, will be partly funded via bond issuance, meaning an increased wave of potential opportunities for fixed income investors, offering scope for issuer and maturity diversification – across government, supranational and corporate bonds.
In addition, increased government spending on strategic sectors could potentially bolster issuers’ creditworthiness, via stable cash flows, strong order books and supportive regulatory environments.
The key sectors set to benefit
Defence is a key element of Europe’s goal of strategic autonomy. Military spending is projected to reach 2.5% of European GDP (an increase of 0.6 percentage points in two years) and exceed the previous 2% of GDP NATO target in over three-quarters of EU member states.1
Companies involved in defence manufacturing and related areas could benefit from long-term government contracts and strategic backing, offering a potentially more predictable credit environment.
Energy independence and resource security also present potential opportunities. European policies like REPowerEU – a roadmap to phase out Russian energy following the outbreak of the Ukraine war – and the Critical Raw Materials Act aim to diversify supply sources and develop domestic capabilities in renewable energy, critical minerals, and energy infrastructure.
Investment-grade bonds issued by companies engaged in solar, wind, energy storage, and raw material processing could benefit from supportive policies, declining costs, and increasing demand.
Furthermore, infrastructure investments – such as modernising electricity grids, transportation networks, and digital infrastructure – are integral to Europe’s strategic goals. Such projects are likely to benefit from stable, often regulated cash flows, and should be supported by long-term government funding and policy commitments.
Technology is a key pillar of European strategic autonomy, and the thread that runs throughout other sectors, from electricity grids to military applications as well as communications, AI and cybersecurity.
The CHIPS act is aimed at both increasing the bloc’s competitiveness and reducing the potential for supply chain disruption while Europe is also investing heavily in datacentres and gigafactories.
Meanwhile bond issuance from large tech companies has reached record levels as they look to fund their AI capex, with many of the larger players turning to markets outside of the US, including Europe, to raise capital.
A nuanced approach
While the European Commission is pursuing autonomy for the bloc as a whole, individual European countries may find benefits in working together – which also creates potential benefits for investors. Cross-border infrastructure projects, joint ventures, and technology transfer initiatives are gaining traction, spreading geopolitical risks and fostering resilience.
For fixed income investors, bonds issued by regional entities or companies involved in such collaborations could potentially offer diversification benefits and exposure to new areas of growth.
However, against a backdrop of ongoing geopolitical tensions as well as rapid technological change, fixed income investors must adopt a nuanced approach.
Notably, companies and sectors receiving notable government support may face increased scrutiny and be vulnerable to policy changes or budget reallocations, creating an element of credit risk.
As such, we believe that a fundamental, bottom-up approach combined with rigorous credit analysis, scenario planning, and stress testing are essential to navigate the uncertainties.
By carefully navigating the risks and seeking to capitalising on the opportunities, investors can position themselves to potentially benefit from Europe’s evolving strategic landscape and contribute to shaping a more resilient, self-sufficient continent.
[1] Readiness 2030: one year after its announcement, the European rearmament plan is on track
