Carmignac Sécurité: Letter from the Fund Managers - Q4 2025

In the fourth quarter of 2025, Carmignac Sécurité posted a performance of +0.06%, compared with +0.43% for its reference indicator, bringing full-year performance to 2.30% versus 2.28% for the reference indicator.

2025 was a year dominated by politics, fiscal shocks and central bank pivots, with the return of Donald Trump to the White House acting as the main catalyst for volatility across global fixed income markets.

The year opened with a sharp bond sell-off. Strong US activity data in January, notably a robust December jobs report, pushed the 10-year Treasury yield to a yearly high near 4.8% as markets reassessed the timing of Federal Reserve easing. However, inflation data quickly softened fears of renewed overheating, and expectations of rate cuts re-emerged, setting the tone for a year in which monetary policy would oscillate between growth concerns and political pressure.

The inauguration of President Trump on 20 January marked a turning point. Early tariff announcements against Canada, Mexico and China triggered risk-off episodes and contributed to higher term premia, especially at the long end of the US curve. Fixed income markets became increasingly sensitive to policy credibility, fiscal sustainability and inflation risks, culminating in several episodes of abrupt curve steepening. These tensions peaked in early April with the so-called “Liberation Day” reciprocal tariff announcements. The resulting equity crash spilled into rates, with the US 30-year yield recording its largest daily jump since March 2020 as investors reassessed recession and inflation tail risks simultaneously.

By mid-year, fiscal concerns took centre stage. In the US, Moody’s downgrade of sovereign debt and the passage of the “One Big Beautiful Bill Act” reinforced fears of structurally higher deficits. Long-dated Treasury yields repeatedly tested the 5% threshold, even as growth momentum began to slow. Ultimately, weakening labour market data over the summer gave the Fed room to pivot decisively, delivering three rate cuts between September and December. As a result, the 10-year Treasury yield ended the year around 4.15%, down roughly 40bps year-on-year.

In Europe, the fixed income narrative was reshaped by fiscal policy rather than trade. After early ECB rate cuts supported sovereign bonds, the announcement of a €500bn German defence and infrastructure stimulus in March triggered the largest daily rise in Bund yields since reunification. This marked a regime shift: long-term yields moved structurally higher on expectations of sustained issuance and higher potential growth. Political instability in France compounded the move, pushing French yields above Italian levels for the first time in decades.

Japan provided a final pillar to the global rates story. Persistent inflation near 3%, a surprise change in political leadership and aggressive fiscal stimulus led the Bank of Japan to raise rates twice in 2025. Ten-year JGB yields surged nearly 100bps, their largest annual rise in over thirty years.

Despite these shocks, credit markets proved resilient. Strong carry, falling policy rates in the second half of the year and continued investor demand for yield drove further spread compression across investment grade and high yield, extending a multi-year rally in corporate debt.

The year was, above all, a carry story. The Fund’s core allocation to short-dated, highly rated corporate bonds provided the main engine of returns, supported by selective positioning in our preferred segments, particularly financials (including subordinated instruments), the energy sector and CLOs. Additional positive contributions came from inflation-related strategies, US yield-curve management, and diversifying emerging-market exposure. We also maintained a proactive risk framework, notably through credit hedges (iTraxx Xover), which proved valuable as shock absorbers during periods of market stress, but weighed on performance as spreads tightened to multi-year lows across the board.

However, starting in November portfolio hedges reflecting our defensive positioning weighed on performance. In a carry-driven market with spreads reaching multi-year lows across the board, our spread-hedging strategies (on both credit and sovereign debt) detracted slightly from performance.

In terms of portfolio evolution, throughout 2025 duration was managed dynamically to reflect evolving rate-cut expectations and macroeconomic risks. We increased modified duration from 1.5 to 2.1 in January, maintaining a modest long bias in German rates as ECB easing was priced conservatively. As markets moved to price more aggressive cuts, we reduced duration to 1.9 in March and then to 1.6 in April. Ahead of the May FOMC meeting, duration was reduced further to 1.3 - its low point for the year - as markets appeared particularly optimistic about the trajectory of monetary policy. From July onwards, we rebuilt duration via the front end of the euro curve and curve-steepening strategies, as the market no longer priced rate cuts despite persistent downside risks to growth, bringing duration to its current level of 2.6.

On the credit side, we gradually increased exposure throughout the year, reaching the high-70% range, including CLOs, primarily through short-maturity issuers offering attractive carry, funded by a reduction in money market instruments, against the backdrop of steeper credit curves.

The current environment remains characterised by gradual monetary normalisation, persistent macroeconomic and political uncertainty, and carry-driven markets amid late-cycle valuations. In this context, we continue to favour a barbell construction aimed at capturing attractive carry while preserving the portfolio’s ability to absorb temporary stress episodes, resulting in a modified duration of 2.6 slightly above that of its reference indicator.

At the core of the portfolio, exposure remains tilted toward credit (around 77–79%), primarily invested in short-dated, highly rated corporate bonds, where we find attractive risk-adjusted carry with limited spread duration.

This core allocation is balanced by the following positions:

• A long exposure concentrated at the front end of the euro yield curve, where the market no longer prices additional rate cuts despite ongoing downside risks to growth.
• A short position on French government bonds amid heightened political and fiscal uncertainty.
• A short position on the 7–10 year US yield curve, combined with long breakeven inflation, reflecting overly optimistic rate-cut expectations amid resilient growth and inflation likely to remain above target.
• Credit protection representing 7.9% via iTraxx Xover CDS, reflecting tight spreads and elevated uncertainty.
• An allocation of 15.1% to money market instruments, providing an attractive and low-risk source of carry.

Finally, the portfolio offers a yield-to-maturity of 3.7%, which serves as a key source of recurring performance and the first line of defence during periods of interest rate and/or credit spread corrections.