• Credit: US investment grade bonds suffered from the sharp rise in US rates, losing 1.8% over the week. In high yield, despite a lower duration risk, a similar performance (-1.8%) was recorded last week, due to a sharp widening of spreads (+30bps). In Europe, the week was relatively more benign with a contained loss of 0.8% for IG bonds and -0.1% for high yield. European high yield spreads continued to tighten, down 10bps to 428bps over the week.
  
• Emerging market: Last week, emerging market corporate and sovereign bonds lost 1.9% on the week, mainly due to the poor performance of the US Treasury. But emerging markets also suffered a series of setbacks, with Adani continuing to worry despite solid quarterly results, President Guillermo Lasso's failed referendum in Ecuador, Moody's two downgrades of Egypt (B-) and Nigeria (CCC+) and finally the tragic earthquake in Turkey and Syria.

EM

CAUTIOUS  

Emerging market bonds have rallied impressively, outperforming investment grade US corporate bonds by more than 5% over the past six months. But rising idiosyncratic risks and the tight premium to investment grade bonds make us tactically cautious.

The contrarian view: subordinated debt!

POSITIVE

One of our favorite fixed income segments, offering attractive valuation (in relative terms) despite the recent rally. The sector continues to benefit from strong capital position, low non-performing loan ratios and balance sheets that remains well provisioned.

Global government yields have resumed their upward trend since the last US jobs report. At the same time, the rate volatility index, the MOVE index, rebounded sharply last week, which put pressure on asset classes (credit, equities, etc.). Just when it seemed that the Fed had succeeded in reducing the uncertainty around rates, the unexpected (good) macroeconomic data complicates the equation.