Maintaining duration overweight on EUR rates

Candriam maintains selective duration and credit exposure while limiting risk because policy expectations, sovereign uncertainty and currency volatility create uneven opportunities.

• In EUR rates, it favours 10-year Bund duration and a 10/30 steepener, with a valuation framework indicating a Bund yield near 3.25% even after another ECB hike; markets price roughly three further hikes by summer 2027.
• France and Belgium remain underweight because French new borrowing costs exceed 4%, versus an average financing cost near 2%, and nearly 40% of outstanding French debt must be refinanced within five years.
• Australia is the strongest developed-market rates conviction against New Zealand, while UK rates are neutral; in emerging markets, hard-currency yields have risen about 140 basis points this year and local-currency yields remain above 6%, but tight spreads and dollar volatility limit position sizes.
• Candriam remains long yen and short euro, has initiated a short Israeli shekel position, and is short Australian dollar against New Zealand dollar, reflecting divergent monetary and growth trends.
• In credit, it turns moderately positive on US investment grade, with yields around 6%, keeps a moderate positive view on EUR investment grade at roughly 4.2% yields and spreads near 100 basis points, moves AT1s to neutral, and reduces its US high-yield underweight at yields near 8.3%.

Takeaway: The portfolio should retain selective duration, carry and relative-value positions, but wait for greater stability in US rates, the dollar and French sovereign risk before adding materially to risk; inflation, energy prices, fiscal borrowing and geopolitical shocks remain key constraints.