ECB survey expects tighter credit for hedge funds in Q1 2026
The European Central Bank's December 2025 SESFOD survey indicates that credit terms and conditions are expected to tighten in the first quarter of 2026, particularly for hedge funds. This follows a period of largely unchanged terms between September and December 2025.
Anticipated tightening for Q1 2026
Credit terms and conditions are anticipated to tighten in the first quarter of 2026, with a particular focus on hedge funds.
This expectation follows a period between September and December 2025 where price and non-price credit terms remained largely unchanged, with a slight easing of price terms across most counterparties.
This easing was primarily attributed to general market liquidity conditions, increased competition from other institutions, and the financial strength of counterparties.
Looking ahead, tightening expectations are more pronounced for price terms than for non-price terms, affecting all counterparty types.
Funding demand and market-making shifts
Demand for secured funding increased across all collateral types, especially for domestic and high-quality government bonds.
Financing rates and spreads rose for nearly all collateral types, with the maximum amount and maturity of funding also increasing for debt instruments.
Regarding market-making, respondents reported minor changes in activity levels for 2025, but anticipated increased activity across all instrument types for 2026. The ability to act as a market-maker in times of stress improved for derivatives but worsened for debt, asset-backed, and convertible securities compared to 2024. The SESFOD survey collects qualitative information from a panel of 26 large banks quarterly.