We maintain a neutral stance on US nominal duration. The framework has moved away from the slightly positive signal seen previously and now points to a more balanced assessment. Fair-value models are close to neutral for the 10-year Treasury under assumptions of stable Fed funds and oil around current elevated levels – notwithstanding the very real risk that energy prices rise further. This is not a clear valuation entry point, especially as recent US data have generally surprised on the upside.
Growth momentum has been more resilient than expected. The recession signal has faded, the probability of expansion has been revised modestly higher, and several indicators — including PMIs and the Atlanta Fed nowcast — have rebounded. The continued strength of investment linked to artificial intelligence is an important support for activity. The labour market also remains broadly stable, with no decisive evidence of a further deterioration in employment conditions.
The inflation picture remains the main obstacle to a stronger duration call. Higher oil prices have reinforced upside risks, as tariff-related inflation really begins to trickle through into consumer prices. AI-related demand appears to be adding to growth and to inflationary pressure. In the short term, market inflation expectations remain closely linked to energy prices, and TIPS (Treasury Inflation-Protected Securities) continue to offer a more positive expression than outright nominal duration.
Monetary policy is also less straightforward. The April FOMC meeting, Powell's final one as chair, included an unusual number of dissents and was interpreted as a shift towards rate stability and reduced expectations of cuts. The market has even moved towards pricing some risk of a hike by end-2027. At the same time, the economic scenario still allows for a more dovish Fed if the growth backdrop softens and if the new leadership places greater weight on a new, narrower, inflation measure.
In implementation, we therefore keep US nominal duration neutral, retain a positive bias towards US real rates and inflation protection, and will remain alert to any signal from the Fed that that could revive front-end duration opportunities.
We maintain a modest positive bias on euro duration via the 10-year segment. The framework remains slightly supportive, with fair value, sentiment, flows and technical factors all pointing in the same direction, even if none of them argues for an aggressive position. The market has traded in a broad 2.90%-3.10% Bund yield range since mid-March[1], and the upper end of that range continues to offer better value than spread risk in peripheral markets.
The main driver of euro rates remains the oil price. Higher energy prices have eclipsed the traditional flight-to-quality reflex, leaving duration more correlated with equities than would normally be expected in a geopolitical shock. In fact, the market correction has arguably occurred almost only via the risk-free rate, given that even equities include this component in their valuation.
The business-cycle signal has deteriorated. Growth indicators have slowed sharply, recession probabilities have risen, and PMIs have weakened, initially through services. We do not interpret the strong manufacturing prints (and hence balanced Composite PMIs) as underlying resilience but rather as a stock-building effect, bringing forward some orders. This weakening is not yet fully reflected in the market and should provide medium-term support to duration.
Inflation keeps the front end more vulnerable. Headline inflation has moved back towards 3% and is expected to remain around that level for now, while core inflation is likely to rise from still reasonable levels. The ECB has clearly prepared the market for a June hike. Beyond June, the policy path remains highly dependent on developments in the Middle East and the trajectory of energy prices. In fact, we see hikes as a likely tailwind for longer-dated bonds. Hiking into a slowing economy where higher energy prices already act as a supply-driven inflationary shock and a brake on growth will take away further oxygen from the real economy.
On non-core spreads, we remain selective. Spain and Italy are neutral, Belgium remains underweight, and France is neutral but closely monitored for a potential renewed short, possibly against Italy or Germany. We prefer Bund duration to BTP-Bund spread exposure at current levels. Within smaller eurozone markets, we keep a positive bias on Slovakia and Slovenia, supported by index-inclusion effects, and on Bulgaria as a new member of the eurozone.
Australia remains our clearest positive duration view outside the eurozone. The Reserve Bank of Australia has already delivered a meaningful tightening cycle, with policy rates at restrictive levels and several hikes now behind it. The market still prices more than one additional hike, but the pass-through of tighter policy should be relatively quick given the importance of variable-rate mortgages. We do not see evidence of a new acceleration in inflation that would justify a more aggressive policy path. We implement this view relative to US duration in eligible strategies.
In the UK, the framework is now neutral, and the view is much more tactical. The political backdrop has become more complicated, and gilts remain sensitive to fiscal concerns, debt sustainability questions and the repricing of term premium. We continue to believe that the Bank of England is unlikely to validate the full amount of tightening that has been priced at times, but the market remains vulnerable to political headlines and concerns about deficit financing.
Emerging market assets have delivered another month of strong performance[2], supported by high risk appetite across EMD, credit and equities. Credit-spread tightening continued to lows not seen in over 10 years. Local currency markets also performed well through both rates and FX. The only explicitly positive grade remains EM FX, but the broader assessment is benign: emerging markets look preferable to many other spread markets, in particular high yield corporate credit.
Relative value versus USD credit is still good, further supported by inflows. Positioning does not appear heavy and therefore still leaves room for further upside if global risk appetite remains resilient. In that sense, EMD is neutral in absolute terms, but compelling on a relative basis compared with corporate.
We acknowledge that in absolute terms, spread levels are not compelling. Spreads widened briefly at the start of the conflict, but quickly tightened back, which limits the case for adding broad hard-currency beta after the rally. The support instead comes from still compelling yield levels and a degree of yield pickup versus developed market credit.
Within the asset class, EM corporate balance sheets continue to look relatively interesting, supported by improving fundamentals. Local currency markets also remain relevant because if the weaker-dollar theme continues, local-currency exposure and EM FX should remain the more compelling way to express this view.
The broad currency theme remains one of US dollar weakness, but the euro is no longer the main beneficiary. The market has increasingly preferred higher carry and “risk on” currencies, while the euro has struggled to benefit from the weaker dollar narrative as growth deteriorates. We therefore keep a negative stance on the US dollar but prefer to express it selectively.
Within G10, we also remain negative on sterling because political risk remains high and the UK macro-fiscal picture is fragile. We keep a structural positive view on the yen. The yen has already benefited from Bank of Japan intervention, and it remains compelling provided tensions in the Strait of Hormuz ease, because that would make the BoJ more comfortable in proceeding with normalisation. We are also positive on the Australian dollar, which is supported by resilient domestic data, a restrictive policy and still relatively favourable external dynamics.
In emerging market currencies, we continue to prefer the Brazilian real and Mexican peso. The combination of carry and carry-to-volatility remains compelling, and the weaker dollar theme gives these positions a better risk-reward profile than a simple long euro/dollar exposure.
We move investment grade back to neutral in both EUR and USD. The macro backdrop is not without risk, but corporate fundamentals remain resilient, and investment grade credit continues to play an important role in allocations. Demand is still present despite valuations that are not especially compelling, but the combination of absolute yields and solid balance sheets argues against maintaining a stronger underweight. In the eyes of many investors, the distinction of the “risk-free” sovereign and “risky” corporate bond has blurred for high quality issuers, leading them to accept thin risk premia.
We remain more cautious on high yield. Supply is expected to be heavy over the coming months, fundamentals continue to weaken, and sector dispersion is increasing. Technology and autos remain under structural pressure. The maturity wall is also becoming more relevant, particularly in Europe, where many firms will need to refinance bonds issued at highly favourable post-Covid conditions, weighing on free cash flow generation.
Implementation should remain defensive. We prefer larger issuers with stronger pricing power and stronger balance sheets, and as a result we have reinforced exposure to corporate hybrids issued by investment grade companies. This segment offers spread pickup while keeping issuer quality higher than in broad high yield, at the cost of sacrificing some yield vs. “pure” high yield issuers. CoCos remain neutral: the asset class has been resilient and technicals are supportive because issuance remains limited, but after the recent evolution we do not see a case to add exposure.
[1] Source: Bloomberg – 30 April 2026
[2] Source : J.P. Morgan EMBI Global Diversified (Total Return): 2.86% - At 30 April 2026
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