Carmignac Portfolio Global Bond

US data sent mixed signals with July nonfarm payrolls disappointed with just +73k jobs, alongside downward revisions of -258k for May and June. Meanwhile, inflation data surprised on the upside, with core CPI rising to +3.1% YoY and PPI accelerating to +0.9% in July. Nevertheless, Q2 GDP was revised higher to +3.3%, supported by stronger personal consumption.

Despite sticky inflation, Powell’s dovish tone at Jackson Hole emphasized rising labor market risks and reinforced expectations of a September rate cut. However, President Trump’s attempt to remove Governor Lisa Cook, raised concerns about Fed independence and contributed to steeper yield curves.

In Europe, signs of stabilization appeared as August flash PMIs showed modest growth. Germany’s manufacturing rebound led the way and eurozone data confirmed expansion and inflation held near 2%.

In France, the announcement of a confidence vote and the risk of a government collapse if no agreement is reached on the austerity plan proposed for the 2026 fiscal year, weighed on markets and pushing the OAT/Bund spread to 79 bps, its highest since 2024.

In August, yield curves steepened on both sides of the Atlantic. In the US, the move was pronounced, with the 2Y falling by -34 bps versus -14 bps for the 10Y, as markets priced in rate cuts. In Germany, the shift was modest, with the 2Y down -2 bps and the 10Y up +3 bps.

On the currency front, the US dollar resumed its decline amid expectations of accelerated rate cuts and concerns about the Fed's independence. As a result, the US dollar weakened against all other G10 currencies in August, and the dollar index fell 2.2% over the month.

During the month, the fund posted a positive performance, outperforming its reference indicator.

Against a backdrop of falling interest rates focused on short end of the curve, the fund benefited from our long positions in US rates, as well as our short positions in 10-year French bonds. However, pressure on rates across the Channel penalised our long position in UK debt. Finally, our selection of local emerging market debt in Brazil and Eastern Europe continued to perform well.

In terms of credit, our selection of bonds in the energy sector, as well as our selection of emerging market debt denominated in hard currencies, made a positive contribution.

Finally, in terms of currencies, although the portfolio maintained limited exposure to the US dollar, it was penalised by its general decline during the month.

Against a backdrop of uncertainty linked to the impact of tariffs, geopolitical tensions and the risk of fiscal slippage in certain countries, we anticipate that the major central banks in developed and emerging countries will maintain an accommodative stance. In this context, we are therefore maintaining a relatively high level of modified duration, around 5.

Regarding interest rates, we have a slightly bearish position on the short end of the US curve, with the market optimistically pricing in five rate cuts, but also on the long end, where the risk of budget slippage and concerns about the Fed's independence are pushing rates higher. In Europe, we are long on core countries, with the market no longer anticipating further rate cuts, and short on France due to political and fiscal risks. We are also positioned for lower UK and Canadian rates, given the deterioration in economic data and short Japanese rates, where the inflation outlook has been revised upwards. Finally, we remain selective on emerging market local rates, which are benefiting from high real rates, as in Brazil, but also in some Eastern European countries.

On credit, we are maintaining significant exposure, benefiting from an attractive carry. However, given the relatively tight valuations, we remain cautious and are maintaining a high level of hedging on the iTraxx Xover to protect the portfolio from the risk of widening spreads

Finally, in terms of currencies, we are maintaining limited exposure and continuing to limit our exposure to the US dollar. Our currency selection includes Latin American currencies (the Brazilian real and Chilean peso) and commodity-linked currencies (the Australian dollar, Canadian dollar and Norwegian krone). Finally, we are maintaining a long position on the Japanese yen, as the Bank of Japan is likely to be the only central bank to raise rates this year.