The intensification of hostilities between Israel, the United States and Iran has propelled the prices of oil upwards and causes the spectrum to regional destabilization, in a context of rumors over a change of diet.
Assailed by record heat waves and a whole series of geopolitical and macroeconomic events that put their nerves to the test, investors experienced a particularly trying June. The intensification of hostilities between Israel, the United States and Iran has propelled the prices of oil upwards and causes the spectrum to regional destabilization, in a context of rumors over a change of diet. Subsequently, the tensions in the Middle East gradually appealed and the attention of investors turned to the deadline of the 90-day truce announced by President Trump after the “Liberation Day”. The unpredictable alternation of phases of tension and relaxation underlined the precarious nature of a policy shaped at the discretion of the president.
Despite the volatility linked to the current context, the bond markets have recorded positive performance. The yields of American treasury bills fell in June, supported by the weakness of macroeconomic and labor market indicators, two factors that argue in favor of monetary easing. In early July, yields increased slightly due to the resurgence of concerns related to inflation and customs duties, whose suspension period is coming to an end. In Europe, bond yields remained generally stable during most of the month before progressing slightly in July, investors anticipating the end of the ECB.
On the credit front, the cash markets have particularly resisted the rise of uncertainties. The appetite of investors for credit has remained solid, the technical factors resulting in a tightening of the spreats while the investors remained waiting for the evolution of the situation in Iran. The fundamentals of companies have continued to support the SPREADS, while the vigor of demand has boosted the performance of the secondary market, despite the large volume of primary emissions. Technical factors remain favorable and fund entries do not weaken, so that the Investment Grade and High Yield segments have both recorded positive performance.
American rate: adoption of a tactically neutral positioning, but positive opinion in the medium term
Given the complex interaction between good surprises on the data front and underlying economic trends, we adopt a neutral position on short-term American rates. Solid at first, recent figures for non-agricultural employment mask a weakened internal dynamic: beyond hires in the public sector, due to seasonal factors in the field of education, job creations are limited. This observation has prompted investors to postpone their anticipations of drop in Fed rates by several months. On the budgetary front, the “Big Beautiful Bill” and the concerns that this arouses have weighed on the long part of the rate curve. The Fed should wait for the situation to clarify, knowing that the recent data has made the monetary softening less urgent. In this context, the good performance of American obligations encourages us to take advantage of our long position.
However, medium -term prospects are more favorable and treasury bills could benefit from a slowdown in economic activity and the persistence of uncertainties linked to commercial policy. The market movements last month were largely influenced by the decline in real yields, while inflation anticipations (dead points) have remained stable, which is concerned about growth than inflation. If the financial conditions remain accommodating while inflation is upward -oriented, the evolution of employment remains at the center of the Fed concerns. In fact, the labor market is losing momentum: ISM indices are deteriorating in the manufacturing sector and services, while workers’ trusted indicators are retreating. While advanced indicators suggest new access to weakness, medium -term perspectives remain positive for duration, which encourages us to favor short deadlines.
Euro zone rate: we restore neutral after a long period of positive positioning
Optimists for a long time vis-à-vis the region, we now adopt a more cautious attitude on the duration in the euro zone. Built at the end of June, this adjustment reflects the conjunction of several factors encouraging caution, even if the reference rates remain close to their fair value. In the short term, two -year yields remain attractive in terms of valuation. But the yield of 10 years, whose fair value is close to 2.5%, seems to reflect the market equilibrium level despite some marginal bullies.
On the macroeconomic front, the fundamentals do not allow to set up significant directional positions. Indeed, cycle indicators continue to brush a gloomy table. If the PMIs have improved slightly, they continue to timidly oscillate around the threshold of 50, or even below in the case of countries like France. Growth prospects are pleading in favor of stagnation and marginal gains revealing a production just over zero.
At the same time, the dynamics of inflation stabilize. The global IPC gradually returned to around 2%, while underlying inflation should be around 2.3% in the short term. A larger decline seems unlikely before 2026. This relative stabilization results in a neutral signal on inflation and monetary policy, especially since market prices align with the projection of a drop in rates by the end of the year (the last meeting of the ECB having revealed that the end of the flexibility cycle was close).
On the offer side, the second half of 2025 should see a reduction in emission volumes, after the significant anticipation effect of the start of the year. The provision of German bonds has been particularly well absorbed, with high subscription ratios and a growing interest of non-residents. In the medium term, the supply could, however, arouse concern, especially after 2026, due to the expansion of budgetary plans and increasing dependence on long -term emissions. This dynamic strengthens the attraction of 10-year-old steeping strategies, in particular in Germany and the Netherlands, where structural changes (such as the evolution of Dutch pension funds) accentuate pressure to this.
Our positioning on sovereign bonds reflects a selective risk taking on the “non-core” markets. Recent transactions include exposure to obligations related to sustainable development of Slovenia and sub-severaine issuers (for example, Flanders offers a more interesting yield and better budgetary indicators than Belgium). Overall, we adopt a defensive bias in terms of duration, via opportunistic pennification and relative value transactions depending on the supply context and the macroeconomic situation.
Credit markets: Optimism on banking subordinate debt, high -performance “neutral” increase in euros
The European and American investment bond markets show remarkable resilience in a context marked by geopolitical uncertainty and macroeconomic turbulence.
Despite a potential for the compression of the limited Spreads in the coming weeks, the solidity of the fundamentals remains a support factor. While the results of the first quarter have been stable, the dynamics of ratings remain positive for the European Grade Grade segment (ratings are more numerous than degradations). The results of the second quarter – in particular those of the banks – will be followed closely, but no significant deterioration is anticipated. The technical factors are also favorable: a wave of early emissions in May and June has largely satisfied the market, which will result in moderate volumes during the summer. While demand remains solid and reasonable positioning, reinvestment flows are an additional positive factor. However, the very low level of the Spreads leads us to maintain a neutral position when approaching summer.
In this context, high beta segments such as Cocos AT1 arouse renewed interest, thanks to yields of 6%, limited supply and vigorous demand. Although the Spreads remain narrow and the summer volatility is not without risk, the attractive portage and the right context of credit justify a moderately positive position towards this asset class.
These trends are reflected in the investment grade segment in the United States. The valuations are tense, but the fundamentals remain satisfactory: the margins of EBITDA are up, the debt decreases and the large companies in the Investment Grade segment display good income as well as management charges. Sectoral divergences remain, energy and chemistry being lagging behind, but the vigor of technology and health balances the table. In view of the stability of business results, this dynamic justifies a neutral perspective for American investment securities.
In the high-performance segment, we display selective optimism (especially in Europe), while it is necessary to take into account the deterioration of the fundamentals and tense valuations, especially in the United States. Unlike the Investment Grade sector, the trend of ratings is negative in both regions, the risk of defects continuing to progress among the less well rated issuers. Sectors such as the automobile and distribution are under pressure, and “zombies” companies – unable to repay their debt in a context of rates increase – will not escape a restructuring or a defect.
On the other hand, the technical factors of the European high performance market prove to be relatively solid. The segment again attracts capital, thanks to more attractive valuations after the underperformance caused by the excess offer in June. With the probable break from primary emissions during the summer, the Spreads of European high -efficiency titles – high compared to their fair long -term value – could remain stable if volatility remains contained. In addition, from the point of view of international investors, the cost of coverage promotes high -efficiency European titles compared to their American counterparts.
The recapitalization of dividends is however worrying, as companies supported by private equity funds offer substantial distributions in a context of global stock market IPOs, which accentuates the pressure on credit indicators. However, the global environment justifies the return to a neutral position on the high return in euros, supported by a robust demand and a decreased offer.
For its part, the US high performance remains under pressure. The fundamentals deteriorate, the valuations seem excessive and the technical factors begin to weaken while the emissions resume after the moratorium imposed by the season of results. The recent large -scale operations, in particular that concerning Carnival, illustrate this new dynamic of the offer. In this context, we remain resolutely negative with regard to the US high performance, whose short -term potential is limited in a context of tightening of financial conditions and high valuations.
