Manuela D’Onofrio

In the past three months we have increased allocation to emerging market bonds in hard currencies. They offer an attractive yield advantage over European government bonds and a compelling carry opportunity for investors seeking higher returns. 

The Federal Reserve’s ongoing monetary easing and the expected weakening of the US dollar should create favourable conditions for emerging market economies. To mitigate currency risk, we’ve implemented EUR-hedged currency strategies. This protects us against potential euro-dollar volatility, ensuring currency fluctuations do not erode returns. 

One of our strongest convictions is in euro-denominated investment grade (IG) corporate bonds, where we maintain an overweight position. Despite historically tight credit spreads, these bonds offer resilience supported by a stable economic cycle and a strong investor appetite for yield. The fundamentals of IG companies remain solid, with robust balance sheets, high earnings, ample cash reserves and historically low leverage levels, providing strong protection against economic fluctuations. 

Our stance is contrarian, given tight spreads that some see as limiting upside. However, the quality and stability of IG corporates in Europe justify this positioning, as these companies are well prepared to weather potential downturns. The search for yield continues to support demand and we see euro IG bonds as a compelling option for conservative yield enhancement.

Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity by Daron Acemoglu and Simon Johnson