Monthly House Views - Renewed tensions on interest rates - September 2025

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Interest rates under pressure

Long-term sovereign yields begin this new season with a fresh phase of volatility and upward pressure, in contrast to short-term rates which continue to decline. This nervousness reflects both uncertainty about the trajectory of central banks — caught between a desire to ease and caution amid risks of renewed inflationary pressures — as well as concerns regarding fiscal sustainability.
Growth in the main economies remains resilient. In the United States, trade policy and uncertainty are causing a slowdown, but it remains contained thanks to some labor market resilience and strong corporate results. In Europe, growth remains moderate but positive and is expected to strengthen with easing inflation and the initial effects of stimulus plans. In China, economic activity also remains resilient, notably supported by still very dynamic exports despite protectionist policies.

Maintaining our overweight on equities

This combination of macroeconomic resilience and ongoing tensions in interest rates strongly supports our current strategic positioning. Consequently, we continue to maintain an overweight allocation to equities while remaining underweight in bonds.
The robust performance of equities since the "Liberation Day," combined with favorable earnings outlooks in the technology sector, as well as the presence of supportive fiscal and monetary policies and a cyclical recovery in Europe, all encourage us to sustain our exposure to US equities alongside our overweight stance on European equities. On the other hand, projections indicating a significantly increased issuance of sovereign bonds on both sides of the Atlantic are expected to keep upward pressure on sovereign yields. Therefore, we uphold our pronounced underweight position in sovereign bonds to mitigate this risk.

A strategically balanced position

Our strategic framework remains well balanced. We continue to maintain an overweight position in both Investment Grade (IG) and High Yield (HY) credit, as these segments appear less sensitive to fluctuations in long-term interest rates and offer an attractive yield carry. Additionally, we persist in holding exposure to gold as a safe-haven asset and keep hedges in place to protect against a potential depreciation of the US dollar. This diversified approach aims to manage risk while capturing opportunities across different asset classes.

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