Carmignac Portfolio Global Bond: Letter from the Fund Manager - Q2 2026

In the second quarter of 2026, Carmignac Portfolio Global Bond posted a performance of +3.63%, compared with +0.96% for its reference indicator¹.

The second quarter of 2026 once again demonstrated how quickly market narratives can shift. Following a turbulent first quarter dominated by geopolitical tensions and inflationary concerns, investor sentiment improved significantly as fears of a broader Middle East conflict eased. The interim agreement between the United States and Iran, culminating in the reopening of the Strait of Hormuz, drove Brent crude to its largest quarterly decline since the first quarter of 2020. This prompted a broad reassessment of inflation risks, supported sovereign bond and credit markets, and shifted investors' focus back to resilient economic fundamentals.

Against this backdrop, central banks adopted a cautious stance. The Federal Reserve's (Fed) first meeting under Chair Kevin Warsh delivered a hawkish message, highlighting the resilience of the US economy and signalling that rates may need to remain restrictive for longer. Market expectations consequently shifted from pricing around 7 basis points of rate cuts at the start of the quarter to nearly 40 basis points of additional tightening by quarter-end. In Europe, the European Central Bank (ECB) raised its deposit rate by 25 basis points to 2,25%, its first increase since 2023, with President Christine Lagarde emphasising that broadening inflation pressures justified further policy normalisation despite lower energy prices.

Although monetary policy remained restrictive, falling oil prices provided a favourable backdrop for fixed income, with divergent performances across sovereign bond markets and flatter yield curves. US Treasury yields rose, with the 2-year increasing by 38 basis points and the 10-year by 15 basis points, reflecting stronger economic data and a more hawkish Fed. Conversely, German Bunds rallied as easing inflation expectations pushed the 2-year yield down by 9 basis points and the 10-year by 14 basis points.

Credit markets also remained resilient. Strong corporate fundamentals, robust demand for yield and easing geopolitical tensions drove further spread compression across investment grade and high yield markets, with the iTraxx Xover outperforming and tightening by 108 basis points.

Foreign exchange markets remained relatively resilient during the quarter despite elevated geopolitical uncertainty. After weakening in April as optimism surrounding US-Iran negotiations reduced demand for safe-haven assets, the US dollar recovered against the euro over the remainder of the quarter, supported by resilient US economic data and a more hawkish Federal Reserve. Emerging market currencies also performed well overall, benefiting from improving global risk sentiment, attractive carry and lower oil prices towards quarter-end, with commodity-linked and selected Latin American currencies among the strongest performers.

The fund delivered a positive performance over the quarter, outperforming its reference indicator for most of the period despite a market environment characterised by shifting expectations for growth, inflation and central bank policy. Performance was supported by diversified contributions across rates, spread products and foreign exchange.

Interest-rate strategies were the main performance driver. Long positions in European sovereign bonds, together with selective exposure to Norwegian, Australian and New Zealand rates, contributed positively, while short positions on US rates also added value during much of the quarter. Local emerging market rates, particularly Hungary following the election of Peter Magyar, were another positive contributor. These gains were partly offset by the Fund's short position in French government bonds.

Spread products also delivered a positive contribution, driven primarily by hard-currency emerging market debt and selective corporate credit exposure, notably financials, although CDS hedges partially offset these gains. Currency strategies remained supportive, benefiting from selected commodity-linked and high-carry currencies, while the Japanese yen modestly detracted.

During the quarter, modified duration was gradually increased from 4.5 to around 5, reflecting a progressively more constructive stance on rates while maintaining the Fund's core positioning in inflation-linked strategies, emerging markets and diversified credit.

The investment environment remains characterised by resilient economic activity, persistent inflation risks and elevated geopolitical and fiscal uncertainty. At the same time, the repricing across global bond markets has improved the opportunity set for fixed income investors.

Against this backdrop, the portfolio maintains a modified duration of around five years and remains positioned to benefit from attractive carry across a diversified range of global fixed income markets.

In rates, we continue to favour a selective approach. We remain cautious on US rates given resilient growth and persistent inflationary pressures. In Europe, we maintain long positions in Germany while remaining short France amid ongoing political and fiscal uncertainty. We also retain a flattening strategy on the Japanese curve, reflecting our expectation that the Bank of Japan will continue its policy normalisation. Within emerging markets, we continue to favour countries offering attractive real yields, particularly Brazil, South Africa and Eastern Europe.

Spread products remain focused on hard-currency emerging market debt, supported by attractive carry and improving fundamentals, while CDS protection is maintained given relatively tight valuations. In foreign exchange, we retain limited US dollar exposure and continue to favour a diversified basket of selected emerging market and commodity-linked currencies alongside a long position in the Japanese yen.