Europe

Earlier this month, we wrote about the high cost of staying in cash in the Euro market. In that note, we argued that a combination of inflation, low front-end rates and steeper curves, favoured a rotation out of cash and cash like instruments into other alternatives that delivered better real returns, including credit. Building on this argument, we wanted to extend this perspective to the US dollar market and highlight a few key points.

France is in the news again. Prime Minister Lecornu became the latest casualty of the French politics saga that began just over a year ago when president Macron called a surprise early election.

In November 2023, we estimated that holding cash, as opposed to staying invested, could cost investors 10-30% over a three-year period. At the time, we highlighted that interest rates had reached their cyclical peaks and were likely to decrease from that point.

As active managers we are naturally looking for bonds that we believe are mispriced, therefore offering attractive risk-adjusted carry or, sometimes, a capital gain if market pricing falls into line with our view. Equally important is to avoid sectors facing structural or protracted cyclical downturns where we don’t think valuations reflect the fundamentals.

The $5.2tr asset-backed finance (ABF) market represents a growing opportunity to gain exposure to high quality loan pools and the returns they can generate.

The turbulent start to 2025 has sent many investors seeking alternatives to US assets, but in our view European fixed income can offer more than just diversification.

Softer US economic data means the pressures on UST yields now look more balanced, but headlines around President Trump’s pick for the next Fed chair are just one reason investors should expect rates volatility to continue.

The question for investors now is how much of the macro risk remains, and how well that risk is being reflected in asset valuations.

With much fanfare, President Trump and Prime Minister Starmer announced a “historic” trade deal between the US and UK on Thursday. The main points for the UK are a reduction in auto tariffs from 27.5% to 10% for the first 100,000 cars that enter the US, and the removal of steel and aluminium tariffs.

After a chaotic week in global markets following the tariffs announced by President Trump on April 2, at time of writing (April 10) investors are left to contemplate 125% tariffs on China, a baseline 10% on the rest of the world, 25% on auto imports and a 90-day pause on more punitive rates.

“Liberation Day” has landed, and not with a whimper. In extraordinary scenes in the Rose Garden of the White House, President Trump held up a board outlining the level of tariffs the US will impose on countries around the world, and in most cases they were worse than worst-case expectations.

The incoming German government’s removal of the country’s infamous “debt brake” is a serious pivot for the typically fiscally conservative country, and one that we think highlights the value on offer in European assets.