Carmignac Portfolio EM Debt

The main announcement of the month came from the German parliament, which adopted a reform of its debt brake policy in order to increase its military spending while validating the creation of a 500-billion-euro infrastructure fund.

In the United States, the statistics have been mixed, with disappointment over the leading indicators, which reflect less dynamic growth prospects and more vigorous inflation.

On the other hand, US economic statistics remain robust, with strong household and business consumption ahead of the implementation of tariffs.

Core inflation fell slightly on both sides of the Atlantic at the end of February, now standing at +2.6% in the euro zone and +3.1% across the Atlantic.

The change in German fiscal policy doctrine resulted in a massive rate shock, as illustrated by the +33bp rise in the German 10-year rate, unlike its US counterpart, which remained stable in view of the uncertainties weighing on growth.

On the emerging front, emerging fixed income markets declined, with credit spreads widening.

On the currency front, the euro appreciated strongly against the dollar, with the market anticipating a negative impact of tariffs on US growth, resulting in a favourable economic growth differential for Europe. The weak dollar benefited to some emerging currencies.

Over the month, the fund delivered a negative performance, slightly below its ref. indicator.

On rates front, in a context of strong pressure on European rates, we mainly benefited from our short positions on European rates, while the fund was impacted by its long positions in the United States and on some Emerging market rates (Hungary, Czech Republic).

Our credit exposure made a negative contribution, mainly impacted by the widening of credit spreads on our selection of emerging external debt (in hard currencies) such as Ukraine, Ecuador and Egypt. This negative impact was only partially offset by the protections we put in place to reduce our credit exposure.

Finally, on the currency front, the strong rise of the euro had a negative impact on our US dollar exposure, even though we maintained a cautious exposure throughout the month, as well as on our long positions on the Colombian peso and the Kazakh tenge.

In a context marked by uncertainty regarding customs tariffs, the budgets allocated to European defence and geopolitical issues, and characterised by increasingly tense valuations in certain markets, we expect the main central banks of developed and emerging countries to gradually continue their monetary easing. Thus, we are maintaining a relatively high level of modified duration.

On rates, we favour real rates in the US, as economic data in a context of tariff imposition point to a slowing economy. In addition, we also focus on emerging central banks that are behind the cycle, such as Brazil, which also benefits from high real rates and an allocation to some Eastern European countries. We also have short positions on European rates in a context of high budgetary spending on defence.

In credit, we see opportunities among high-yield securities, such as Ivory Coast, and Colombia, which offers an attractive source of carry. On the other hand, we are cautious due to high valuations and maintain a significant level of coverage on the iTraxx Xover to protect the portfolio from the risk of widening spreads.

Finally, with regard to currencies, we maintain a significant exposure to the euro. On the contrary, we have a relatively low allocation to the US dollar and limited exposure to emerging market currencies. Our currency selection includes Latin American currencies (BRL, CLP) and Eastern European currencies (PLN, CZK, HUF). Finally, we are maintaining a long position on the Japanese yen, which should perform well in the context of increased geopolitical tensions with the upcoming introduction of tariffs by the United States.