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, Brent crude oil prices rose sharply in the first part of the month, reaching $100 per barrel, before slightly declining 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 to the downside for June, at 3.5%, partly due to lower energy prices that month but also thanks to a clear and widespread decline in core inflation. Conversely, inflation surprised to the upside in the eurozone 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 eurozone, 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 declined 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 economic downturn worsening over the month, as the composite PMI fell 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. Most notably, 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 climbed 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, 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. For Euro Investment Grade, the spread stands at 61 bps (ICE BofA Euro Corporate index), 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. The High Yield segment outperformed Investment Grade, benefiting from higher carry and structurally shorter duration. Furthermore, euro HY spreads narrowed slightly in July, by 10 bps for the ICE BofA Euro BB-B index, to 197 bps. In this context, the total return of the index was -0.32%.
Sector dispersion remained limited, with a notable 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 started well, 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 negative performance, penalized by the broad-based rise in sovereign rates. In this context, we increased the portfolio’s interest rate sensitivity (3.1 at the end of July), considering the rise in yields to be excessive.
Credit sensitivity was maintained at 3.18. Overall, despite high volatility, we remain broadly constructive on short & medium-term IG credit given the solid fundamentals of issuing companies.
During the month, the fund operated in the secondary market to strengthen its exposure to the European banking sector, notably via Eurobank, AIB Group, Mediobanca, SpareBank, BBVA, and Nordea. Second-quarter results, overall, confirmed favorable business momentum as well as solid operational performance for the sector. At the same time, we increased several corporate IG issuers (Telia, Akzo Nobel, Nokia, Sika Capital, Siemens…). In the current context, we favor intermediate maturity bonds (2-4 years) given the carry offered in this segment. The fund’s overall ESG rating remains “C.”