Europe: inflation at 2.5%, energy tensions and rise in bond yields
In the eurozone, inflation rebounded to 2.5% in March, slightly below market expectations, after being below the ECB target in recent months. At the same time, activity indicators suggest a gradual but still fragile improvement. The manufacturing PMI returned to expansion at 51.6, while the services PMI slightly weakened. Growth prospects remain uncertain, amidst persistent geopolitical tensions and rising energy costs. Before the Middle East conflict, central banks in major economies were either cutting rates or maintaining stability, but the current situation has prompted markets to quickly reassess their monetary policy expectations. This uncertainty has led to a marked increase in sovereign yields, especially on the short end of the curve, indicating increased volatility and a significant risk profile repositioning. In European bond markets, March saw investors adjusting as German mid-term sovereign bond yields rose by 39 basis points to reach 2.94% by month-end, reflecting new macroeconomic expectations. In the corporate credit sector, European High Yield underperformed (-2.59%) compared to its US and Emerging Market counterparts, highlighting a particular sensitivity to rising energy costs and a more challenging environment. This pressure is due to the region’s structural dependence on oil and gas imports and their direct impact on company profit margins, which amplify vulnerability to price volatility. Uncertainties surrounding inflation and future monetary policy have weighed particularly on cyclical segments. The yield on European corporate markets closed the month at 6.30%.
United States: geopolitical tensions, rising oil, and bond yield increases
In the US, March PMI indices indicate both a growth slowdown and signs of persistent inflation following the Middle East conflict outbreak. However, the US economy remains robust, supported by steady consumption and investments. The job market also holds up well, with no clear signs of an imminent recession. Manufacturing business sentiment has slightly improved, driven by expectations of reduced tariffs following a Supreme Court decision. During its March meeting, the Federal Reserve kept rates unchanged, noting increasing uncertainty linked to geopolitical issues. Meanwhile, oil surged by +50% during the month due to the energy supply shortage outlook. It reached its highest level since 2022, the year of the Russian invasion of Ukraine. The US dollar strengthened by +2.4% against major currencies, while precious metals saw a significant correction. Gold, in particular, dropped by -11.5% due to rising real interest rates, dollar strength, and new monetary policy expectations. In March, US markets were impacted by escalating geopolitical tensions, leading to increased volatility in stocks and bonds. The yield on intermediate Treasury securities rose by 38 basis points to close at 4.24%, the highest level since last August. This largely reflects surging oil prices and reassessment of monetary policy expectations in the face of inflation risks. In the corporate credit market, US High Yield (-1.19%) outperformed Investment Grade (-2%), as the latter was more sensitive to interest rates amid sharply rising bond yields. Spreads widened in both rating segments. Despite the High Yield being affected by sovereign rate corrections, spread widening was relatively moderate compared to Europe or emerging markets. This relative outperformance was supported by protective carry effects with high coupons and the US’s energy independence, making the economy less vulnerable to Middle East-related inflation shocks. By month-end, the yield on US corporate markets stood at 7.39%.
Emerging Markets: energy shock, strong dollar, and bond credit tensions
In emerging markets, March was also marked by the Middle East conflict. This led to major disruptions in raw material supplies, including oil, gas, fertilizers, aluminum, and other essential chemicals for global production chains. As a result, this supply shock is expected to fuel widespread inflation while slowing global economic growth. Asian economies, heavily reliant on energy imports from the region, appear most exposed, especially as the blockade of the Strait of Hormuz severely limits available alternatives. Consequently, some governments have taken exceptional measures, such as the Philippines declaring an energy emergency. The extent of these effects will depend largely on the conflict’s duration and the damage inflicted on production capacities.
In March, emerging market credit experienced its worst month since 2023, penalized by the dollar’s strength resurgence and rising energy costs. This decline particularly impacted oil-importing countries, raising sovereign default concerns and causing significant spread widening. In this high-rate tension context, Emerging Market Investment Grade was most affected with a -2.51% performance, as its longer duration made it more vulnerable than High Yield (-2.01%). Furthermore, facing this volatility, the primary market almost froze in the latter part of the month as issuers awaited rate stabilization. However, fundamentals remain solid, partly due to past refinancing pushing out debt maturities, which should keep default rates at current low levels despite the sharp price adjustments. By month-end, the yield on Emerging Market bonds stood at 8.21%.
Excerpt from Anaxis AM’s monthly letterCredit Corporate Monthly Update – April 2026
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