April was marked by ongoing geopolitical tensions in the Middle East, set against a backdrop of uncertain negotiations and persistently high energy prices. Despite these risk factors, markets rebounded, supported by initial diplomatic progress and a renewed appetite for risk. Volatility remained elevated in bond markets, with mixed movements in yields, which nonetheless ended the month slightly higher overall. High-yield markets delivered positive performance, with returns of +1.94% in Europe and +1.52% in the United States. This was mainly driven by a significant tightening of spreads, along with a recovery in investor inflows. In this environment, the asset class continues to offer attractive yields, supporting carry-oriented investment strategies.
Our High Yield Strategy
The conflict in the Middle East once again dominated the news in April. Negotiations began during the month, raising hopes of a possible de-escalation. However, the process remains uncertain, with often contradictory statements from the various parties.The Strait of Hormuz remains closed at this stage, continuing to place significant strain on oil supply chains. Against this backdrop, energy prices remained high: Brent crude eased temporarily to around $90/barrel during the month, before returning to its highs towards the end of the period, close to $120/barrel. Despite this uncertain environment, the initial diplomatic progress was welcomed by the markets. Risk assets thus rebounded during April: the S&P 500 rose by +5.57% (in local currency), reaching a new all-time high of 7,200 points, whilst the Stoxx Europe 600 also posted a solid gain of +5.56%. These performances are all the more remarkable given the backdrop of persistent inflationary pressures and downward revisions to growth forecasts linked to the conflict.
The sovereign bond market remained highly volatile, reflecting uncertainty surrounding the outlook for inflation and monetary policy. Expectations regarding ECB rate hikes initially fell to two at the start of the month, before rising back to three by the end of the period, following higher-than-expected inflation figures and a rebound in oil prices. Against this backdrop, short-term rates initially fell, driven by renewed optimism regarding a resolution to the conflict, before rising again and ending the month at levels slightly higher than those seen at the end of March (+3 bp on the German 2-year and +8 bp on the US 2-year). The same trend was observed at the long end of the curve: despite significant intra-month movements, yields rose slightly over the month (+4 bp on the 10-year Bund and +5 bp on the US Treasury).
The credit market, and in particular the high-yield segment, has benefited from the rebound in risk assets and a renewed appetite for risk among investors. Against this backdrop, high-yield performance has been positive, at +1.94% for the euro segment and +1.70% for the US segment (in local currency). This performance is mainly attributable to a narrowing of risk premiums, by -57 bp in Europe (following a widening of +68 bp in March) and by -45 bp in the US (following +18 bp the previous month). Subscription flows have picked up again, whilst the primary market has returned to a more sustained level of activity.
Against this backdrop, the rise in sovereign bond yields continues to underpin the asset class’s overall return, despite the narrowing of risk premiums. We believe that the current environment remains favourable for a carry strategy. We have therefore taken advantage of the primary market and opportunities in the secondary market to further diversify the portfolios of our maturity-matching funds. As for open-ended funds, we have also participated in new issues whilst maintaining a broadly stable positioning: a slight underweight in credit risk, given the rapid narrowing of spreads, and a long duration exposure to benefit from persistently high interest rates.