Flexibility is the new alpha
Eurozone growth remains slow but steady, with the ECB cautious and the yield curve flat. Our flexible, high-quality approach aims to manage risk and seize opportunities as year-end volatility looms.
The eurozone economy continues to move at a pace best described as “slow but steady”—think of a tortoise that occasionally checks its watch. Inflationary pressures remain subdued, though the ECB still keeps a wary eye on them like a parent monitoring a mischievous toddler.
November’s composite purchasing managers’ index (PMI) softened slightly, driven by weakness in manufacturing and moderation in services. France posted a modest rebound, perhaps enjoying a brief moment of political calm, while Germany’s PMI declined, with inflation at 2.4%, just above the ECB’s 2% target. Eurozone inflation data is expected at month-end, but don’t expect fireworks.
The ECB curve has shifted from slight inversion to a flat profile, pricing for 2026 around 1.80–1.82%, implying roughly a 30% probability of a rate cut. The next ECB meeting is scheduled for December 18, but don’t hold your breath—policy action is as likely as a unicorn sighting. Short-end investment yields remain stable.
We remain in a neutral stance on duration with a weighted average maturity (WAM) of approximately 40 days—because sometimes playing it safe is the smartest move. Strategy focuses on selective allocation to asset-backed commercial paper for yield enhancement and opportunistic extension into six months to lock in duration and hedge against near-term rate cuts.
Liquidity and risk management remain top priorities, with exposure concentrated in high-quality issuers. French sovereign issuance continues to look attractive, proving that even in politics and markets, France knows how to keep things interesting. The credit curve’s continued steepening supports selective duration extension, and we maintain flexibility to adjust WAM higher if curve dynamics warrant. Asset-backed CP remains a tactical allocation, particularly as year-end dynamics can lead to pricing volatility—think of it as the holiday season rush, but for funding markets. In short, we’re staying nimble, because in today’s environment, flexibility is the new alpha.