Anfang
As this is a monthly bulletin, the review below reflects developments during February while also incorporating the significant market movements that occurred in early March following the escalation of U.S. involvement in the conflict with Iran. We begin with the recent geopolitical developments and their market impact before stepping back to review the broader market backdrop that prevailed through most of February.
A sharp geopolitical escalation late in the period dramatically shifted the market’s tone. U.S. and Israeli strikes on Iran triggered a broader regional confrontation that extended into month-end and into early March. Iranian retaliation targeted regional infrastructure, while tanker attacks effectively closed the Strait of Hormuz — a chokepoint that carries roughly 20% of global oil supply.
Historically, the market impact of geopolitical shocks tends to fade over days to weeks unless accompanied by sustained disruptions to energy supply. As a result, oil remains the key swing factor for markets. The sharp move in crude prices in recent days reflects not only disruption risk around key shipping routes such as the Strait of Hormuz, but also strikes on energy infrastructure in Saudi Arabia and Qatar. This introduces an additional channel beyond shipping disruption alone — the risk of broader geographic escalation and infrastructure damage — which could prove more durable and therefore more consequential for markets.
In this context, the macro implications are highly dependent on the duration of the conflict. Two broad scenarios help frame the potential outcomes.
1) In a fast de-escalation scenario, where tensions ease within days or weeks and energy flows normalize, the geopolitical risk premium embedded in oil prices would likely fade. In that environment, inflationary effects would likely prove temporary, allowing central banks to largely look through the shock. Government bonds would likely regain their traditional haven characteristics, breakevens and term premia could ease, and rate volatility would likely decline as markets re-anchor around the existing policy path.
2) By contrast, in a more protracted conflict scenario, where disruptions to shipping routes or regional infrastructure persist, energy prices would likely remain elevated and continue feeding into inflation expectations. In that environment, central banks may delay rate cuts or adopt a more cautious policy stance, and government bonds could lose some of their traditional hedge characteristics. Higher breakevens, rising term premia, and greater volatility across rates markets would likely accompany wider risk premia across credit and emerging markets.
For most portfolios, the primary transmission channels would likely remain indirect:
- Oil → inflation expectations → higher rates volatility and tighter financial conditions
- Safe-haven FX dynamics, including periodic U.S. dollar strength during stress
- Wider risk premia in credit and emerging markets during periods of elevated uncertainty
With limited direct exposure to the region, we do not expect idiosyncratic Middle East country moves to be a dominant driver of portfolio drawdowns.
Looking ahead, the most important signals remain straightforward: the trajectory of oil prices, the functioning of key shipping routes, and whether evidence emerges of broader infrastructure damage or geographic escalation. The persistence of elevated energy prices will likely provide the clearest indication of whether the growth and inflation impulse remains contained or becomes more material.
From a portfolio management perspective, we continue to monitor developments closely while remaining disciplined on position sizing and liquidity. Consistent with our active, value-driven investment process, macro risks will be assessed alongside movements in valuations, and portfolio risk positioning will be adjusted as opportunities arise.
February Review
Stepping back from recent developments, it is useful to consider the market backdrop during February prior to the geopolitical escalation.
Before the sharp geopolitical shock late in the month, February’s market environment was characterized by modest spread widening and a gradual softening in technicals across credit markets.
Investment grade spreads widened meaningfully over the course of the month. IG corporates widened 11bps to +84bps OAS, reversing January’s tightening, with BBB spreads widening 13bps to +104bps. Financials widened 13bps to +87bps, and longer-duration IG underperformed. High yield spreads also moved wider, increasing 26bps to +291bps, with weakness concentrated in lower-quality and software-related credits. At the same time, U.S. Treasury yields declined materially over the month as investors sought safety, helping offset some of the impact of wider corporate spreads.1
Market technicals softened modestly during the month. Lower government bond yields reduced all-in returns, dampening demand from insurance companies and pension funds, while retail and mutual fund inflows continued at a slower pace. Primary demand remained healthy overall, though investors demonstrated greater price sensitivity, with meaningful order attrition at final pricing for some transactions. Gross issuance totaled approximately EUR 73bn, within the expected EUR 70–80bn range, split between EUR 37bn of financials (broadly flat year-on-year) and EUR 36bn of non-financials, which came in softer than anticipated. The EUR/USD cross-currency basis continued to favor USD issuance for European borrowers. At the same time, the market remained attentive to elevated M&A- and capex-related supply, particularly from non-financial issuers, reinforcing sensitivity to incremental issuance amid rising volatility.2
Dispersion also intensified across AI-exposed sectors. In leveraged loans, software — roughly 13% of the index — underperformed materially, with average bids falling into the mid-80s. Selling was largely indiscriminate and driven more by longer-term refinancing and competitive concerns than immediate earnings deterioration.
Securitized markets were comparatively steady through much of the month. Spread sectors were broadly tighter to stable, supported by balanced technicals, while agency MBS modestly widened after earlier strength tied to policy-related headlines faded. Activity tapered into month-end around the ABS West conference, contributing to quieter secondary trading conditions. Despite the late-month geopolitical volatility, securitized funding markets remained orderly, with no meaningful signs of stress.
Asset Performance Year-to-Date
Asset Performance Year-to-Date
DISPLAY 1
Currency Monthly Changes versus USD
Currency Monthly Changes versus USD
DISPLAY 2
Major Monthly Changes in 10-Year Yields and Spreads
Major Monthly Changes in 10-Year Yields and Spreads
DISPLAY 3
Broad Markets Fixed Income Global Asset Allocation and Outlook
Developed Market Rate/Foreign Currency
(Neutral duration, curve steepeners)
February ended with a sharp geopolitical shock that drove a meaningful flight to quality, reversing earlier rate moves and pushing the U.S. 10-year yield nearly 30bps lower into month-end. Despite the intensity of the move — and a material repricing in energy markets — funding markets and cross-currency basis remained orderly, suggesting markets are adjusting to higher geopolitical risk rather than systemic financial stress. As a result, while volatility has risen, the broader rates regime remains characterized by range-bound dynamics and carry-driven returns.
We maintain a neutral stance on outright U.S. Treasury duration. Our working range for the 10-year remains 3.95–4.25. While elevated oil prices introduce upside inflation risk, structural forces — including fiscal deficits and sustained issuance — continue to support term premia over time. We remain neutral on the U.S. curve, as much of the earlier steepening has repriced and near-term risk-reward appears balanced.
Outside the U.S., we continue to favor selective curve steepeners in Europe, where structural issuance dynamics and more attractive carry and roll profiles offer better relative value than U.S. rates. In Japan, we remain neutral on duration following earlier repricing of normalization expectations.
In inflation-linked markets, we are long U.S. breakevens, as upside risks appear underappreciated following both the recent energy price moves and broader price pressures that remain present (e.g., ISM surveys).
In foreign exchange, we are tactically neutral on the USD. While geopolitical stress has temporarily supported traditional safe-haven flows, we expect USD strength to be episodic rather than structural. We continue to express a positive view on higher-carry EMFX, with positioning primarily in the Brazilian real and selectively in the Mexican peso, where carry remains compelling in a still-benign global funding environment. We use EUR and GBP tactically as funders to avoid volatility in the USD.
Emerging Market Debt
(Overweight)
Emerging market (EM) sovereign and corporate debt remains an attractive opportunity for 2026, even as February’s late-month geopolitical escalation introduced renewed volatility into global markets. While higher oil prices and regional tensions have increased dispersion across countries, broader EM funding conditions have remained orderly, and capital flows have continued to differentiate among issuers rather than retreat indiscriminately. In this environment, carry and income remain central drivers of expected returns.
Lower inflation, elevated real yields, and credible reform momentum across several countries continue to underpin a supportive backdrop. Valuations—particularly in local markets—remain attractive, and many EM currencies are still undervalued relative to the U.S. dollar, reinforcing the case for selective exposure despite episodic safe-haven flows. The recent rise in energy prices may benefit commodity exporters while posing headwinds for energy importers, further increasing cross-country dispersion.
Dispersion across countries remains high, making policy discipline and country selection critical. We continue to favor markets with credible monetary frameworks, improving fundamentals, and attractive real yield differentials versus developed markets, while remaining mindful of geopolitical risks and commodity sensitivity.
Corporate Credit
(Underweight IG, small overweight HY)
Our base case remains constructive for credit, supported by expectations for low but positive growth and correspondingly low default risk. February’s widening — with IG spreads moving 11bps wider to approximately +84bps OAS — has modestly eased valuations, though spreads remain below long-run averages. In our view, current valuations are broadly supported by strong corporate fundamentals and resilient demand for yield.3
Corporate balance sheets remain healthy as we enter a phase where late-cycle behavior is likely to increase, including M&A activity, AI- and infrastructure-related capex, and elevated shareholder distributions. This environment reinforces the importance of sector and security selection. Strong demand for Euro investment grade credit in particular should help cushion the anticipated increase in non-financial issuance tied to M&A and capex over the coming year.
At the same time, geopolitical tensions, U.S. policy uncertainty, above-target U.S. inflation, and rising idiosyncratic news flow — particularly in technology, software, and insurance — temper conviction in meaningful spread tightening from current levels. As a result, while fundamentals remain supportive, we expect carry and security selection to be the primary drivers of return rather than broad-based multiple expansion. Regionally, we continue to prefer Europe over the U.S., supported by more balanced supply dynamics and comparatively supportive policy settings.
We maintain a modest overweight to select high-yield issuers in both the U.S. and Europe. Fundamentals remain supportive, with improved average credit quality, low default rates, and manageable leverage. While spreads are near post-crisis tights, the higher carry, shorter spread duration, and increased issuer dispersion continue to create opportunities for security-level positioning. Recent episodes of idiosyncratic volatility underscore the importance of selectivity, but defaults are expected to rise only modestly and remain contained, supporting ongoing investor demand.
Leveraged Loans
(Underweight)
We expect heavier net supply and rising dispersion in leveraged loans. While CLO demand remains a key technical support, economically sensitive sectors are showing signs of strain, contrasting with strength in software and technology-linked issuers. Given expectations for Fed rate cuts, we prefer fixed-rate exposure over floating-rate assets and remain underweight the asset class.
Securitized Products
(Overweight)
Agency mortgage-backed securities (MBS) and non-agency residential mortgage-backed securities (RMBS) remain a high-conviction overweight for 2026. While agency MBS modestly widened following the fading of earlier policy-related headlines, broader securitized spreads were generally steady to tighter through February, demonstrating resilience even as geopolitical volatility increased late in the month. Agency MBS continue to offer attractive spread pickup relative to both historical levels and other core fixed income sectors, providing compelling relative value versus investment grade corporates and cash alternatives.
Technical factors remain an important driver of performance. Demand for agency MBS continues to be supported by money manager interest in high-quality collateral with attractive carry, alongside a measured and predictable pace of Federal Reserve balance sheet runoff that has limited net supply pressure. Despite episodic volatility, securitized funding markets have remained orderly, reinforcing the sector’s defensive characteristics within spread products.
Non-agency RMBS continues to offer an attractive opportunity set, underpinned by stable home prices, low loan-to-value ratios, and historically low delinquency rates. Supply-demand dynamics remain favorable, with limited new issuance and minimal refinancing risk given the high proportion of borrowers locked into low mortgage rates.
Within CMBS, fundamentals remain resilient, particularly in higher-quality segments. Improving sentiment and stable property-level performance support selective opportunities in hospitality, logistics, storage, and high-quality multifamily assets. Dispersion across property types and geographies continues to increase, reinforcing the importance of selectivity and a focus on single asset single borrower (SASB) structures.
We also remain constructive on Danish covered bonds, where defensive characteristics, strong legal frameworks, and attractive USD-hedged yields continue to support relative value.
1 Bloomberg - February 28, 2026
2 Bloomberg - Feb 28, 2026
3 Bloomberg Feb 28, 2026
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