The month of March was marked by a sharp rise in geopolitical tensions, leading to a surge in oil prices and reviving fears of a stagflationist shock. In this context, volatility increased sharply across asset classes, particularly in fixed income markets, with a marked response from short -term rates. High Yield markets recorded negative performances ( -2.69% in Europe and -1.13% in the US), penalized by both higher rates and widening spreads, more pronounced in Europe than in the US. Despite a more tense environment, the market remained functional, offering investment opportunities in a context of returns that have become attractive again.
High-Yield strategy
The conflict with Iran dominated the news in March, after the strikes carried out by the United States and Israel on Iran on 28 February. These events caused a dramatic surge in oil prices (Brent +44% at $104/barrel), with markets gradually integrating the hypothesis of a more lasting conflict whereas a brief confrontation was initially anticipated. The sharp rise in energy prices has revived the prospect of a new stagflationist shock, leading to a marked correction across all asset classes. In the month of March alone, the S&P 500 recorded its largest monthly decline in a year (-4.98% in local currency), while the Stoxx Europe 600 experienced its strongest monthly decline since June 2022 (-7.54% in local currency).
The market for sovereign rates has seen a strong rebound in volatility, particularly on the short part of the curve. Faced with the risk of a marked resurgence in inflation linked to the rise in oil prices, investors now expect up to three ECB rate hikes in 2026 and no movement by the Fed (against two previously anticipated cuts). Short-term rates rose sharply (+62 bps on the German 2-year benchmark and +42 bps on the US 2-year benchmark), while long-term rates also rose, but more moderately (+36 bps on the Bund and +38 bps on the 10-year US Treasury). This dynamic led to a marked increase in bond volatility, almost doubling compared to end of February, while equity markets rose by around 50%.
The performance of high yield markets was negative in March (-2.69% for euro high yield and -1.13% for US high yield), penalized by the combined effect of higher rates and widening risk premia. This was more pronounced in Europe (+68 bps) than in the United States (+18 bps), reflecting a less favourable perception of the consequences of the conflict for Europe. Although liquidity has been reduced in a context of increased volatility, the market has remained functional: no panic selling was observed, the main flows coming from ETFs. Moreover, while a few issuers have accessed the primary market, volumes have remained limited, with the majority preferring to wait for a lull.
We have been very active in all our portfolios to take advantage of the opportunities generated by the renewed volatility. While maintaining an overall cautious stance on risk premiums, we added risk at the end of the month following the marked spread widening. We also conducted several tactical operations via credit derivatives. After reducing the duration at the end of February/beginning of March, we increased it again in the second part of the month, following the sharp rise in rates. We have also strengthened some attractive return positions within our Opportunity High Yield 2028 Maturing Fund. Finally, we took advantage of the increase in yields to launch a new vintage of maturity funds: SLF (F) Opportunity High Yield 2032.