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In this Q&A, François Collet, CIO of DNCA and portfolio manager of its flagship fixed income strategy, DNCA Alpha Bonds, discusses the impact of the Iran conflict on the global economy and fixed income markets and how his portfolios are positioned for the ensuing volatility.
In this article
Has the conflict in the Middle East changed your forecasts for inflation and growth?
François Collet (FC): In my view, this is likely to be a temporary inflationary shock. Before the conflict, the market was anticipating that inflation in Europe would hit 2%. We now anticipate that it will be greater than 3%.
The impact on inflation in the United States will be smaller, partly because we are starting from a higher level. We can expect inflation in a year’s time to be around 3.25%.
Economists generally predict a reduction in GDP growth of 10 to 30 basis points, which I find rather optimistic. I think we could see a more significant slowdown, particularly in the United States, while in Europe it’s likely to be cushioned by Germany’s fiscal stimulus package.
What impact might the conflict have on monetary policy?
FC: Before the conflict, we anticipated the European Central Bank’s monetary policy would remain unchanged until mid-2027. The probability of a key interest rate of 2.50% within the next 12 months has increased significantly, but we still believe there is a possibility that the status quo will remain.
In the US, I don’t think we’ll see any rate rises; I think it will remain unchanged until the end of Jerome Powell’s term as Federal Reserve chair. I can’t see a scenario in which Kevin Warsh, who has only just been appointed by US President Donald Trump, increases interest rates.
How do you expect yields to evolve from here?
FC: While it is far too early to shift to a negative stance, it appears increasingly clear to us that the potential for yields to ease is very limited for at least three reasons: 1) the macroeconomic environment is not conducive to central banks easing rates; 2) yield curves offer very limited protection, especially since inflation expectations seem very conservative to us; 3) volatility remains elevated.
How are your portfolios positioned for this volatility?
FC: While volatility is unsettling, for active managers like us, it also creates a lot of opportunities. We have deliberately designed our DNCA Alpha Bonds strategy to be highly flexible to allow us to pivot quickly when markets change. We hold 80% of our portfolio in highly liquid OECD government bonds, and we have seven different strategies we can use to deliver positive returns, including holding both long and short positions.
As for current opportunities, at around 1%, we think real rates in the Eurozone are compelling. I still find it very hard to imagine that the ECB could raise its interest rates 1% above the inflation rate. We also believe that inflation expectations are too low in the United States. We currently see a level of inflation that is higher than CPI indicates. Moreover, we believe that the narrative of disinflation in the US, which many believed, is less clear-cut and, in fact, certain inflationary pressures are actually returning.
In terms of geographical exposure, we believe we are well rewarded for taking on risk in regions such as the United Kingdom or New Zealand.
DNCA won Best Fund Provider – Global Bond – Short Term at the Asian Private Banker 2026 Asset Management Awards for Excellence^.
Disclaimer
^ 2026 Asian Private Banker Asset Management Awards for Excellence were issued by Asian Private Banker (“APB”), reflecting performance, asset gathering, service quality and fund selector feedback as at 1 August 2025. For award’s details and methodology, please refer to https://asianprivatebanker.com/awards/asset-management-awards-for-excellence-2026. The designation “Best Fund Provider” is the award name only given by APB which provides no guarantee for future performance results and is not constant over time.
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This is a sponsored advertorial from DNCA Investments, an affiliate of Natixis Investment Managers.
