Carmignac Portfolio Global Bond: Letter from the Fund Manager - Q3 2026

In the third quarter of 2026, Carmignac Portfolio Global Bond posted a performance of -0.55%, compared with -2.11% for its reference indicator, bringing year-to-date performance to +3.42%, versus -0.59% for its reference indicator.

The third quarter of 2026 offered little respite for bond investors, as escalating geopolitical tensions, sharply higher energy prices and resilient growth brought inflation firmly back into focus. Renewed US–Iran strikes and disruptions to Saudi energy infrastructure reversed the previous quarter’s relief, triggering a pronounced sovereign bond sell-off and a significant reassessment of monetary policy expectations. Brent crude jumped 42.0% over the quarter to above USD 100 per barrel, while European natural gas futures climbed 66.6%.

The renewed inflationary impulse was increasingly visible in the data. In the United States, headline CPI stood at 3.4% year-on-year in August, while the Fed’s preferred core PCE measure remained elevated at 3.0%. In the euro area, headline inflation accelerated from 3.2% in August to 3.8% in September, reinforcing concerns that price pressures were proving persistent.

Economic activity nevertheless displayed notable resilience. September’s flash composite PMIs reached a five-year high in the United States and a three-year high in the euro area, giving central banks greater room to focus on renewed inflation pressures. In Europe, the ECB upgraded its growth projections to 0.9% for 2026, from 0.8% previously, and 1.4% for 2027, from 1.2%, underlining the economy’s greater-than-expected resilience.

Against this backdrop, central banks adopted a distinctly hawkish stance. Both the Fed and the ECB raised rates by 25 basis points in September. The Fed’s first hike since 2023 was accompanied by projections signalling another increase by year-end, while the ECB stressed that inflation was set to remain well above target for an extended period.

The bond sell-off pushed key sovereign yields and spreads to levels not seen in well over a decade. The US 10-year Treasury yield increased by 82 basis points to 5.28%, its highest level since 2007, while the German 10-year yield climbed 73 basis points to 3.58%. September’s sell-off was particularly acute at the front end of the European curve, leading to a marked bear flattening. Fiscal concerns added further pressure in France, with the 10-year OAT–Bund spread widening by 48 basis points to 127 basis points, its highest since 2012.

Credit markets, by contrast, showed notable resilience, supported by robust corporate fundamentals and stronger-than-expected growth. Nevertheless, the sharp rise in underlying yields weighed on total returns: euro investment-grade corporate bonds declined 2.6% and euro high-yield bonds 1.6% over the quarter, as the rates shock more than offset the support provided by carry.

Foreign-exchange markets remained volatile in Q3. The US dollar regained some ground, supported by resilient US economic activity, renewed inflationary pressures and a hawkish repricing of Fed expectations, with EUR/USD declining 0.8%. Meanwhile, the Japanese yen emerged as the best-performing G10 currency, appreciating 3.3% against the dollar, supported by FX intervention and further Bank of Japan tightening. Emerging-market currencies proved relatively resilient despite rising global yields, with the EM FX index gaining 1.3%.

The Fund demonstrated resilience in a challenging quarter for global fixed income, significantly outperforming its reference indicator amid a sharp repricing of global interest rates. This relative outperformance highlighted the benefits of its diversified performance drivers and active portfolio management.

Currency strategies were the main positive contributor, led by the Japanese yen, US dollar and South Korean won, alongside gains from selected emerging-market currencies, including the Brazilian real, Kazakhstani tenge, South African rand and Turkish lira. Interest-rate strategies detracted overall, as rising yields weighed on long positions in European and emerging-market rates, particularly in Hungary and Poland. These losses were partly offset by short positions in US Treasuries and French government bonds.

Spread products were the main detractor, particularly hard-currency emerging-market sovereign debt, which suffered from rising global yields and renewed market volatility. Corporate credit also detracted, albeit to a much lesser extent, while gains from credit hedging strategies partially mitigated these losses.

Portfolio positioning remained broadly stable, with modified duration ending the quarter at 4.45.

The sharp repricing in global bond markets has restored a more attractive yield environment, significantly enhancing the portfolio's carry potential and offering a more compelling starting point for future returns. However, persistent inflation, resilient growth and substantial sovereign financing needs continue to create a challenging backdrop for fixed income, reinforcing the importance of active management and selectivity.

Against this backdrop, we maintain a balanced and flexible duration profile, with modified duration at 4.45 at quarter-end. We retain a short bias on long-end US Treasuries, where inflationary pressures and fiscal imbalances should continue to weigh on bonds, alongside long breakeven inflation positions. In Europe, we favour German rates while maintaining short exposure to France amid persistent fiscal uncertainty. In emerging markets, we increasingly favour selected Central and Eastern European local rates.

In spread products, we remain selective, favouring attractive carry opportunities in hard-currency emerging-market debt and corporate credit, while maintaining substantial iTraxx Xover protection given historically tight valuations.

Finally, we maintain limited US dollar exposure and a long bias towards the euro, while favouring high-carry emerging-market currencies, notably the Brazilian real, Chilean peso and South African rand. We also retain a long position in the Japanese yen, supported by the prospect of further monetary policy normalisation.