Portfolio manager comments — Q2 2025
The second quarter of 2025 began with increased tensions in financial markets. The US introduction of broad import tariffs—referred to as “Liberation Day” on April 2—triggered sharp global market reactions, including falling government bond yields, widening credit spreads, and broad equity market declines. Geopolitical tensions also intensified, primarily due to the escalation of the conflict between Israel and Iran.
The sharp rise in European interest rates in March, following Germany’s stimulus package, was largely reversed, and yields were generally lower at the end of the quarter than at the beginning.
The European Central Bank cut rates twice during the quarter, from 2,50% to 2,00%, in line with expectations. However, the tone at the most recent policy meeting was slightly more hawkish, and the market now expects only one additional cut.
The fund has maintained a neutral duration position since April, following the significant drop in yields. Global debt levels, Germany’s stimulus package, and the US budget proposal have shifted market focus to the yield curve, with longer maturities now requiring higher compensation. As a result, yield curves have steepened more than expected, which benefited the fund’s large position for steeper curves.
However, the underweight in Italian 10-year bonds detracted from performance, as market sentiment proved stronger than expected despite global concerns about tariffs and growth. The overweight in French bonds also had a negative impact due to continued political uncertainty, while the overweight in Spanish bonds contributed positively to returns.