Government bonds clearly react positively

The reaction of the bond markets to the developments of the last few days was clearly positive, with both US Treasuries and EUR government bonds rising (and yields falling).

We are therefore more cautiously positioned in US government bonds again. The US administration's policy is simultaneously forcing through measures that promote inflation and weaken growth, which actually runs counter to the interests of the US state. Due to the lack of predictability of the US administration, we remain duration-neutral on US government bonds for the time being. We favour EUR government bonds, particularly French and Italian bonds.

Financials lose more than non-financials

Credit spreads have widened in the wake of Trump's announcements. High beta and high yield have already corrected more sharply. In the corporate bond market, we have been and remain cautious on US high-yield corporate bonds. The economic policy favoured by US President Trump is likely to further weaken the corporate sector, which is entrenched there. We expect risk premiums to continue to rise and are therefore cautious on this bond class for the time being. We remain neutrally positioned on the EUR corporate bond market for the time being. The EUR credit market is somewhat more resilient; financials have recently lost slightly more than non-financials.

Local bond markets react mostly positively

The more pronounced than expected measures, particularly in relation to Asia, are leading to a moderate risk-off reaction on the euro bond side. However, the rise in spreads, which is naturally higher in the lower-rated segment, is largely offset by falling US yields. The local bond markets are reacting largely positively in view of the poorer (global) growth outlook. However, the Emerging Market currencies are losing ground against the euro in parallel with the US dollar. Only Latin American currencies are holding steady against the euro because they are appreciating significantly against the US dollar: Mexico is not affected by the reciprocal tariffs and Brazil is only slightly affected. We remain defensively positioned in Emerging Market hard currency bonds. The decisive factor for us is the expected higher risk aversion of USD bond investors. Although the risk premiums of Emerging Market hard currency bonds have risen moderately since mid-February 2025, the current spread level does not adequately discount the inherent risk factors in our opinion.

Developed equity markets correct significantly

Even before the announcement of extensive tariffs by the US, sentiment on the global stock markets had already deteriorated significantly in recent weeks. The erratic measures from the US have led to one thing in particular: uncertainty. The announcement of the tariffs by US President Trump subsequently triggered a strong market reaction, particularly in the US but also in other regions. Lower economic growth coupled with higher inflation rates will also weigh on the corporate sector. Banks are also likely to come under pressure when pricing in a recession. However, the IT sector in particular has also been sold off sharply, as many companies import components from abroad or have production facilities abroad - including for importing finished products to the USA. Companies have announced plans to relocate production to the USA. However, it is likely to be years before this is realised. Irrespective of the announced tariffs, our indicators have recently deteriorated and we are therefore reducing our equity positioning to a neutral weighting.

Vietnam and China hit particularly hard by tariffs

The introduction of additional tariffs is unpleasant for affected companies in the Emerging Markets. Vietnam and China are particularly hard hit. However, in the case of China, US exports only account for 3% of GDP and we expect the Chinese government to take fiscal measures to offset this negative impact. Taiwan and South Korea are also affected, but semiconductor products are exempt from these tariffs, as is India, where pharmaceutical exports (India exports a lot of generic products to the US) are exempt from tariffs. Since the beginning of the year, Emerging Market equities have continued to catch up with US equities, albeit from a very low level. The fundamental valuation for the Emerging Markets region remains quite favourable. In the Asian region, which is very important for the index, we also expect earnings to recover. Since the beginning of the year, the telecoms and consumer discretionary sectors in particular have benefited.