Carmignac Portfolio Global Bond: Letter from the Fund Manager - Q1 2026

In the first quarter of 2026, Carmignac Portfolio Global Bond posted a performance of +0.34%, compared with +0.59% for its reference indicator¹.

The first quarter of 2026 was dominated by a succession of geopolitical and political shocks, culminating in the outbreak of war involving Iran, which ultimately drove a sharp repricing across fixed income markets.

The first two months of the year unfolded in a relatively constructive, albeit increasingly fragile, environment. Political risks resurfaced quickly, with tensions around Greenland, renewed tariff threats and the US intervention in Venezuela contributing to a gradual deterioration in sentiment. Uncertainty around trade policy following the US Supreme Court ruling on tariffs, combined with growing concerns over the impact of artificial intelligence (AI) on employment and emerging signs of stress in private credit, further increased investor caution.

This environment led to a clear rise in risk aversion and supported sovereign bond markets, resulting in a decline in yields, with 10-year German and US rates falling by around 20 basis points and 30 basis points respectively in February.

March, however, marked a clear regime shift. The outbreak of military conflict with Iran at the end of February and the disruption risk around the Strait of Hormuz triggered a sharp surge in energy prices and a reassessment of inflation risks. Euro area inflation rose to 2.5% in March, and the ECB warned on 19 March that the conflict was creating upside risks to inflation and downside risks to growth. Inflation expectations moved significantly higher, with the euro area 1-year inflation swap rising by 157 basis points in March to 3.37%. In turn, markets rapidly shifted from pricing potential rate cuts to anticipating further monetary tightening, leading to a broad sell-off across fixed income assets.

Sovereign bond markets reacted abruptly. In Europe, 10-year Bund yields rose by 15 basis points over the quarter to reach 3.00%, closing above this threshold for the first time since 2011, including a 36 basis point increase in March alone, while the repricing was even more pronounced at the front end, with the 2-year yield rising by 62 basis points over the month, reflecting a rapid repricing of monetary policy expectations towards more than three hikes by year-end. In the United States, Treasury yields also moved higher, with the 10-year reaching around 4.30% at quarter-end.

Credit markets followed the same pattern, with a marked increase in risk aversion. Spreads widened significantly across the board, as reflected in the rise of the iTraxx Xover index, which widened by 93 basis points in March, highlighting the broad-based repricing of credit risk.

On FX markets, the US dollar was positive overall during the quarter, declining in January amid debasement concerns before rebounding from February in a more risk-averse environment and extending its gains in March. Commodity-linked and emerging market currencies, particularly in Latin America, also performed well.

The fund delivered a positive performance over the quarter, with contributions primarily driven by currency strategies, while rates and spread products were more mixed in a volatile environment marked by shifting rate expectations and geopolitical tensions.

Rate strategies were negative overall. Detractors included long positions in German rates as well as exposure to emerging market rates, notably in Hungary and South Africa, in a context of rising yields. These were partially offset by gains from short positions on US, UK and French rates, particularly during the March repricing driven by higher inflation expectations. Inflation strategies also contributed positively.
Spread products delivered an overall neutral contribution. Hard-currency emerging market debt was impacted by the sharp repricing observed in March, driven by both higher underlying rates and widening spreads. Corporate credit remained broadly neutral over the period, while credit hedging strategies, notably through CDS, contributed positively.

Currency strategies were the main contributor to performance over the quarter. The US dollar was the primary driver, complemented by gains on several commodity-linked and emerging currencies, notably the Norwegian krone, Brazilian real, Australian dollar and Mexican peso.

Modified duration was actively managed throughout the quarter, starting at 3.3, declining to around 2.8 at the end of February, before being rebuilt to approximately 4.5 by quarter-end.

In February, declining yields driven by risk aversion—linked to AI concerns, geopolitical tensions and tariff uncertainty—led us to reinforce our short exposure to US rates, against a backdrop of resilient growth and persistent inflation.

Following the escalation of the Iranian conflict and the associated repricing in global rates, we progressively increased duration. This was focused on the front end of European curves, particularly Germany, France and Italy, where yields became more attractive as markets priced in an excessive number of ECB rate hikes relative to the growth outlook.

We also adjusted our inflation strategies by extending duration, switching part of our exposure from short-dated to longer-dated instruments.

In March, we reduced our euro exposure from 62% to 42%, reallocating towards the US dollar (from 9% to 15%) and the Japanese yen (from 5% to 14%).

The global environment is characterised by heightened uncertainty, driven by geopolitical tensions, rising energy prices and persistent inflationary pressures, while growth remains relatively resilient. In this context, central banks face constrained policy flexibility. The portfolio is positioned with a higher modified duration, around 4.5, primarily driven by exposure to emerging markets, European rates, particularly Germany, and complemented by credit carry.

In rates, we maintain a cautious stance in the United States, where resilient growth and inflation risks argue for upward pressure on yields. Conversely, we favour European duration at the front end, particularly in Germany, where market expectations for rate hikes appear excessive relative to the macroeconomic outlook. We also maintain short positions in France and the UK, reflecting fiscal concerns, and remain short Japan given ongoing inflation dynamics. In emerging markets, we continue to favour selective countries offering attractive real yields.

Our exposure to spread products remains significant, with a focus on hard-currency emerging market debt and selective corporate credit, which contribute both carry and diversification. However, given tighter valuations and episodic risk aversion, we maintain hedging strategies to mitigate potential spread widening.

In foreign exchange, we retain limited US dollar exposure. We favour a diversified basket of emerging and commodity-linked currencies, while maintaining exposure to the Japanese yen, supported by ongoing monetary policy normalisation.