Chart of the Week
The military intervention in Iran had a significant impact on markets this week, including fixed income. All segments of the European bond market saw a simultaneous decline early in the week, driven by rising rates and widening spreads.
That said, the pullback has remained relatively contained compared with the strong performance of recent months. As of the close on March 3, every segment of the euro‑denominated market was still posting positive year‑to‑date returns for 2026: +1.0% for government bonds, +0.6% for investment grade credit, +0.2% for high yield, and +0.6% for AT1 bonds (financial subordinated debt).
OUR ANALYSIS
Unlike in past episodes of market stress, sovereign bonds didn’t get the usual “flight‑to‑quality” support this week. Concerns about inflation, driven by rising oil and gas prices, kept investors from seeking refuge in government debt. As a result, sovereign bonds fell broadly in line with AT1s, and even German debt saw yield increases similar to those of peripheral issuers.
Although this might make it feel as though investors had nowhere to hide during the sell‑off, it’s worth remembering that some strategies are built to step outside the market’s directional swings. By actively managing duration and credit exposure with an absolute return approach, these periods of volatility can be turned into investment opportunities.
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Written on March 6, 2026. Opinions subject to change.
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