Carmignac Portfolio Global Bond: Letter from the Fund Manager - Q3 2025

In the third quarter of 2025, Carmignac P. Global Bond posted a performance of +0.73%, compared with -0.09% for its reference indicator, bringing its year-to-date performance to -0.11%, compared with -5.62% for its reference indicator.

The third quarter of 2025 saw resilient economic growth, despite fatigue in the US labour market, and a gradual shift in expectations regarding monetary policy.

US trade policy remained a dominant theme in Q3, with tariff implementation delayed to August before new deals were struck with the EU and Japan at 15%. Additional increases targeted Canada, copper, and pharmaceuticals, with some rates reaching 100%. While the measures sustained mild inflationary pressures, they proved less disruptive than initially feared, allowing global growth and market sentiment to remain broadly resilient through the quarter.

Another key theme in the third quarter was the gradual weakening of the US labour market, which prompted the Federal Reserve (the “Fed”) to begin its easing cycle in September. The turning point came with the July employment report, released in early August, which was much weaker than anticipated and included downward revisions of 258,000 jobs for May and June—the largest since the 2020 pandemic. The subsequent August report confirmed this softening trend, showing payroll growth of just 22,000 and a rise in the unemployment rate to 4.3%, the highest since late 2021.

Against this backdrop, the Fed adopted a more dovish stance. At Jackson Hole, Chair Powell acknowledged that the labour market was “not particularly tight and faced increasing downside risks.” Consequently the Fed implemented its first 25bps rate cut of 2025 to a range of 4.00–4.25%, and its projections indicated the prospect of further easing before year-end.

As a result, US rates declined during the quarter, with yields on 2-year and 10-year down 11 bp and 8 bp, respectively, reflecting a shift in market focus away from inflation risks and towards labour market fragility.

In contrast, the Euro area faced renewed fiscal and political headwinds, particularly in France, where tensions around Prime Minister Bayrou’s austerity plan and the subsequent vote of confidence fuelled market volatility. The French 30-year yield rose 29 basis points during the third quarter to reach 4.35%, and even closed at a post-2009 high of 4.50% on 2 September, leading to a general upward revaluation of European sovereign yields, with the German 30-year yield rising 18 basis points to 3.28%.

Against this backdrop, the European Central Bank (the “ECB”) maintained its policy rate at 2.0%, signalling a pause after its eight consecutive cuts since mid-2024. The central bank adopted a more balanced tone, acknowledging downside growth risks but limited scope for further easing in light of fiscal uncertainty and balanced inflation risks.

Credit assets continue to show resilience with the iTraxx Xover index tightening by 42 bp to 262 bp, while emerging market hard currency debt remains in demand and continues to benefit from steady inflows, improving credit quality and strong year-to-date net supply.

On the currency front, Q3 saw a positive return for the USD, which had weakened during much of the first half of the year. This was thanks to its best monthly gain since 2022 in July, when US exceptionalism returned, driven by effective trade policy, solid economic data, and strong corporate earnings. However, the USD resumed its decline from August onwards amid expectations of accelerated rate cuts, a poor payroll report, and concerns about the Fed's independence.

The fund delivered a positive return in the third quarter, outperforming its reference indicator. Performance was supported mainly by our allocation to spread products, while active duration management and selective currency positions helped navigate a volatile rates environment.

Rate strategies were mixed. The fund was impacted by its short positions on the long end of the US curve and by our long positions on UK and Norwegian debt. On the other hand, we benefited from our long positions on Canada, which benefited from deteriorating data, as well as our short positions in France amid political instability. Finally, local positions in South Africa and certain regions of Eastern Europe also added value.

Spread products were the main performance driver. Credit exposure, notably in the financial and energy sectors, contributed positively, as did our selection of emerging market debt denominated in hard currencies.

Currency strategies were slightly negative during the quarter. The negative contribution from our exposure to the US dollar was partially offset by gains on certain currencies such as the British pound and the Norwegian krone, as well as emerging market currencies, notably the Brazilian real and the Mexican peso.

The global backdrop remains one of slowing but resilient growth, with labour markets showing early signs of weakness and fiscal policy still expansionary. In this environment, major central banks in both developed and emerging markets are likely to maintain accommodative stances. The fund is therefore positioned with a relatively high modified duration of around 5, seeking to benefit from ongoing monetary easing while capturing attractive carry opportunities. The portfolio offers a yield close to 7%, including currency carry, and remains well diversified across regions and asset classes.

We maintain a balanced approach to duration management. In the United States, we hold a cautious stance given the market’s optimistic pricing of rate cuts amid resilient growth and rising fiscal pressures. In Europe, we favour long positions in core rates where easing expectations have been fully repriced, while maintaining shorts in France to reflect fiscal risk. We remain short Japan, where inflationary pressures persist, and long the United Kingdom, where rates could ease further. In emerging markets, we continue to favour high real-rate countries such as Brazil and parts of Eastern Europe.

Our credit exposure remains selective, focused on attractive carry opportunities in the energy and financial sectors, while partially hedged through iTraxx Xover to protect against widening spreads. Hard-currency emerging market debt continues to represent a core conviction, supported by solid fundamentals and favourable technicals.

The bulk of the U.S. dollar’s decline now appears behind us, reducing its drag on performance. We maintain limited dollar exposure, preferring select emerging and commodity-linked currencies, including the Brazilian real, Chilean peso, Australian dollar, and Norwegian krone. We also retain a long position in the Japanese yen, anticipating further policy normalisation by the Bank of Japan.