Effective date: 31/07/2026July 2026 was marked by the end of negotiations and the resumption of hostilities between Iran and the United States. As a result, the price of Brent crude rose sharply in the first part of the month, reaching $100 per barrel, before falling slightly at the very end of the month to $89. Ultimately, its increase was 22% over the month, the largest rise since March.
The erratic movement of inflation indices reflects the volatility of oil prices. In the United States, headline inflation surprised significantly on the downside for June, at 3.5%, partly due to lower energy prices that month but also thanks to a clear and broad-based decline in core inflation. Conversely, inflation surprised on the upside in the euro area in July, at 2.9%, due to the rebound in oil prices.
Overall, business surveys are consistent with a moderate pace of growth. In the euro area, the composite PMI rose from 50 to 51.9, thanks to an improvement in industry but especially in services, thus returning to its highest level since the outbreak of the war in Iran. Moreover, GDP growth in Q2 came in at +0.4% quarter-on-quarter. In the United States, both the ISM manufacturing and services surveys fell slightly in June (to 53.4 and 54, respectively) but remain consistent with a growth rate of around 2%. The June employment report was not good and cast doubt on the previous three reports, which had been significantly better than expected. In particular, the private sector excluding healthcare returned to job losses. In Japan, PMI surveys remain well oriented with 54.7 for manufacturing and 51.9 for services. China, on the other hand, continues to stand out negatively, with the deterioration in the economic situation worsening over the month, the composite PMI falling to its lowest level since 2022.
Several major central banks held their monetary policy meetings in July, but none decided to change their interest rate policy. The ECB left its deposit rate unchanged at 2.25% but opened the door to a hike in September, in response to renewed tensions in energy prices. For its part, the Fed did not change its key rates but was satisfied with the rise in bond yields since the previous meeting, in direct reaction to economic developments. Above all, it confirmed a radical shift in its communication regime: it will provide significantly less guidance than in the past. This also implies a regime change for the bond market. The Bank of Japan left its main policy rate at 1% but was fairly aggressive about a forthcoming tightening.
Bond yields rose sharply over the month, largely due to the rebound in oil prices. Ultimately, 10-year US and German yields rose by about 30 bps over the month to end at 4.71% and 3.17%, respectively. WTI oil rose in July from $69.5 to $84.7 per barrel. In the short-term segment, rates also tightened in July: +30 bps on the 2-year German yield.
Despite a context of high volatility, credit demonstrated good resilience. In Europe, spreads remained broadly unchanged over the month. On Euro Investment Grade, the spread stands at 61 bps (index ICE BofA Euro Corporate), just 1 bp above its annual low. However, total IG credit performance was negative in July (-0.97%), mainly penalized by the rise in sovereign rates.
Sector dispersion remained limited, with, however, an underperformance in telecoms, penalized by technical factors related to sustained supply and increased competition. The automotive sector remains under pressure, in an environment where investors remain selective on cyclical stocks. The technology and energy sectors also posted weaker performance. Conversely, banks, chemicals, and basic materials were more resilient, benefiting from better relative performance in a market marked by high volatility.
Finally, the quarterly earnings season got off to a good start, with overall solid results that continue to support a positive outlook for credit. European issuers remain, on the whole, financially disciplined and do not, at this stage, show any marked signs of a return to a re-leveraging cycle.
In July, the fund posted a performance of 0.15% (I share), driven mainly by carry. The rise in short-term rates was unfavorable to performance. In the current context, we maintained interest rate sensitivity at an unchanged level of 0.48. This remains mainly concentrated on the short end of the portfolio, with the longest maturities hedged against interest rate risk. The fund’s credit sensitivity also remains stable, at 0.96. In this environment, our positioning remains constructive on short-term IG credit, still supported by solid issuer fundamentals.
During the month, the fund was mainly active on the secondary market: BBVA, BNP, WPP, Sika, Leasys, Unibail, BFCM… In the current context, we favor bond issues with 2-3 year maturities given the carry offered in this segment. The fund’s overall ESG rating is “C”.