Effective date: 31/08/2026In August, the persistence of energy prices at high levels ($89 for a barrel of Brent) continued to fuel fears of accelerating inflation and thus weighed on the bond markets. In response to this rise in long-term rates, U.S. Treasury Secretary Scott Bessent announced that Treasury buybacks on long maturities would be at least doubled for the quarter.
The inflation indices published in August, covering the month of July, delivered a mixed message. In the United States, headline inflation (CPI) slowed to 3.4% year-on-year, compared to 3.5% in June, while core inflation fell to 2.5%, its lowest level of the year. In the eurozone, by contrast, inflation accelerated to 2.9% in July, compared to 2.8% in June, driven higher by a renewed acceleration in the energy component (+10.3% year-on-year) linked to developments in oil and gas prices. Core inflation, for its part, came in at 2.5%.
Business surveys remained generally well oriented despite high energy prices. In the eurozone, the composite PMI rose for the third consecutive month, reaching 52.1 in August, its highest level since November, driven by German industry. In the United States, the ISM manufacturing index jumped to 55.6 in July, its highest level since May 2022, while the ISM services index held steady at 54.1. However, the July employment report disappointed, with a loss of 23,000 non-farm jobs and significant downward revisions for previous months, even though the unemployment rate fell back to 4.1%, a thirteen-month low, due to a further decline in the participation rate.
None of the major central banks held a monetary policy committee meeting in August. The key event of the month from this perspective was the Jackson Hole symposium, where Kevin Warsh was reassuring about the labor market but concerned about the inflation trajectory. For the first time in his term, he provided guidance by saying that the Fed’s attention should currently be focused primarily on price stability. In the eurozone, the ECB minutes suggested that a majority of Governing Council members would be ready to raise key rates in September to contain the effects of rising energy prices.
Bond yields generally increased over the month, particularly at the very end of the month after Kevin Warsh’s speech. The U.S. 10-year yield ended the month at 4.74%, its highest level since the start of 2025. The German 10-year yield rose sharply, ending the month at 3.30%, its highest level since 2011, driven by expectations of an ECB rate hike. Sovereign spreads in the eurozone widened slightly.
Euro credit held up well over the month. In Investment Grade, spreads tightened by 1 bp to 76 bps, generating an outperformance of 7 bps versus sovereigns. However, the 12 bp rise in underlying yields to 3.8% led to a total return of -0.2%. The BBB segment as well as shorter maturities outperformed, while financials underperformed industrials (with Automotive and Telecoms leading). French banks also slightly underperformed in a context of widening OAT spreads. In High Yield, spreads tightened by 10 bps to 255 bps, resulting in an outperformance of 43 bps versus sovereigns and a total return of +0.4%.
Finally, the primary market resumed in the third week, with a total of €40.8 billion in gross issuance, confirming the market’s good absorption capacity despite seasonally less favorable liquidity.
In August, the fund recorded a performance of 0.12% (I share), driven mainly by carry. The rise in short-term rates (+12 bps on the German 2-year, to 2.94%) was unfavorable for performance. In the current context, we maintained the interest rate sensitivity at an unchanged level of 0.87. 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 1.53. 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: BPCE, Leasys, Volvo, Thales… In the current context, we favor bond securities with intermediate maturities (3-4 years) given the attractive overall carry offered in this segment. The fund’s ESG rating is “C.”