Against a backdrop of persistent inflationary pressures, rising political risk in France and the resilience of the European economy, pressure on interest rates has led us to tactically adjust the modified duration of R-co Conviction Credit Euro.
After starting the year with modified duration in line with that of our benchmark, we made a two-stage adjustment. In March, we believed that expectations of rate increases following the emergence of the conflict in the Middle East were overstated. We therefore initiated positions at the short end of the curve, considering that a short-lived conflict would have only a limited impact on inflation and therefore on the ECB’s monetary policy. In view of the carry and roll-down offered by this segment, we considered the risk to be measured.
Over the summer, the protracted conflict, rising energy prices and inflationary pressures led us to reassess our scenario and revise our positioning. As sovereign yields rose significantly worldwide and across the yield curve, we entered September with a neutral duration position. Nevertheless, we remain convinced that inflation is being driven by volatile factors and that second-round effects, such as the emergence of a wage-price spiral, are not currently foreseeable, unlike the situation that prevailed in 2022.
During the previous energy crisis following the outbreak of the conflict between Russia and Ukraine, policy rates were historically low and accumulated savings, particularly in the wake of the Covid-19 pandemic, were higher than they are today. This leads us to believe that market expectations for ECB policy are, at worst, consistent, at best, at the upper end of the range. Against this backdrop, we recently decided to increase the portfolio’s modified duration to a slight overweight relative to the benchmark by initiating positions at the short end of the curve.
In addition, the rise in sovereign yields is proving supportive for the credit market through higher yields. The asset class continues to demonstrate its resilience and offer opportunities, even though volatility is virtually non-existent. Spreads (1) have fluctuated only between 90 and 93 bps since 10 April, while fundamentals and technical factors remain strong (2). Consequently, flows remain robust. Investors seem increasingly reluctant to favour sovereign bonds over corporate issuers, as the renewed attractiveness of well managed companies contrasts with the sometimes less predictable economic policies of governments.
We seek beta exposure through the BBB segment, which offers a premium that we still consider attractive, as well as through subordinated financial debt, which provides attractive carry. However, within this second segment, French financial bonds are beginning to crystallise market concerns. We believe that this risk is more closely related to volatility than to solvency. Indeed, the sector’s exposure to French government debt remains limited. For example, it represents only between 1% and 3% of the total assets held by the major domestic banks (3). French insurers, meanwhile, hold on average less than one quarter of their assets in government bonds, just over half of which are invested in France (3).
Sovereign bonds issued by euro area countries, denominated and funded in euros, also benefit from preferential prudential treatment for these institutions. Consequently, French sovereign risk would materialise through the loss in value of sovereign bonds and the resulting reduction in insurers’ own funds. These unrealised losses are directly reflected in the Solvency II prudential balance sheet (4).
On average, we estimate that a sovereign spread movement of around +50 basis points would reduce the Solvency II ratio of major French insurers by approximately 10 percentage points. The average solvency ratio of these institutions currently exceeds 210% and is therefore sufficiently strong to absorb this volatility (5).
The Italian situation in 2018 may also serve as a precedent for analysing the French case. The formation of a coalition government between the Five Star Movement (M5S) and the League caused the spread between the Italian 10-year BTP and the German Bund to widen sharply. In such a situation, the impact on the prudential balance sheets of French insurers would remain manageable given their current solvency levels.
This risk must nevertheless be taken into consideration. However, given their current yield levels, bonds issued by French insurers still appear to offer sufficient compensation to absorb a degree of volatility. Furthermore, the sector’s fundamentals remain reassuring. In this environment, the further spreads on French subordinated financial bonds widen, the more likely we are to view the situation as a source of opportunities.
(1) Yield differential between a bond and a bond of equivalent maturity considered to be ‘risk-free’.
(2) Source: Bloomberg, 31/08/2026.
(3) Sources: ACPR (Situation of insurers in France at end-2025), company publications, September 2026.
(4) Economic balance sheet of an insurer’s financial position, based on the market value of its assets and liabilities, used to assess its solvency.
(5) Source: Company publications, September 2026.
SRI Risk: 2/7
We have classified this product in risk class 2 out of 7, which is a low-risk category and primarily reflects its exposure to private debt instruments, while maintaining a modified duration ranging from 0 to +8. In other words, potential losses arising from the product’s future performance are considered low and, should market conditions deteriorate, it is highly unlikely that our ability to pay you would be affected. The risk indicator assumes that you hold the product for three years. If you do not, the actual risk may differ significantly and you could receive less in return. The risk scale ranges from 1 (lowest risk) to 7 (highest risk); the lowest category does not mean a “risk-free” investment. The risk category associated with this fund is not guaranteed and may change over time. This is a simplified, non-contractual marketing communication. The information, comments and analyses contained in this document are provided for information purposes only and should not be construed as investment advice, tax advice, a recommendation or investment advice from Rothschild & Co Asset Management. The information, opinions and data contained in this document are considered reliable and accurate at the date of publication, based on the prevailing economic and financial environment, and may change at any time without notice. Although this document has been prepared with the utmost care using sources deemed reliable by Rothschild & Co Asset Management, no guarantee is given as to the accuracy or completeness of the information and assessments contained herein, which are provided for indicative purposes only and may be amended without prior notice. Rothschild & Co Asset Management Europe has not independently verified the information contained in this document and therefore accepts no liability for any errors or omissions, nor for any interpretation of the information contained herein. All data have been established on the basis of accounting and market information. Not all accounting data have been audited by statutory auditors. Furthermore, given the subjective nature of certain analyses, it should be noted that any information, projections, estimates, expectations, assumptions and/or opinions expressed herein are not necessarily implemented by the management teams of Rothschild & Co Asset Management or its affiliates, which act according to their own convictions. Certain forward-looking statements are based on assumptions that may prove to be partially or wholly different from actual outcomes. Any hypothetical estimate is inherently speculative and it is possible that some, if not all, of the assumptions underlying these hypothetical illustrations may not materialise or may differ significantly from current expectations. This analysis is valid only as of the date of preparation of this report. Geographical and sector allocations are not fixed and may change over time within the limits set out in the sub-fund’s prospectus. The information provided above does not constitute investment advice or an investment recommendation. R-co Conviction Credit Euro is a sub-fund of R-Co, a French-law investment company with variable capital (Société d’Investissement à Capital Variable), whose registered office is located at 29, avenue de Messine, 75008 Paris, France, registered under number 844 443 390 RCS Paris. The information provided does not imply that the UCITS presented is suitable for the profile or experience of any individual investor. Rothschild & Co Asset Management shall not be held liable for any decision made on the basis of, or inspired by, the information contained in this document. In case of doubt, and before making any investment decision, investors should consult their financial or tax adviser. The collective investment undertaking (UCI) presented above is governed by French law and regulated by the French Financial Markets Authority (AMF). Investment in units or shares of any UCI is subject to risks. Before investing, investors are strongly advised to read carefully the PRIIPs KID and the prospectus, in particular the section relating to risks. Investors must also ensure that the units or shares of the UCI are registered for distribution in their jurisdiction. The PRIIPs KID and full prospectus are available on our website: www.am.eu.rothschildandco.com. The net asset value (NAV) is also available on our website. 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Investors may therefore not recover the amount originally invested. Currency fluctuations may increase or decrease the value of investments and the income derived from them when the fund’s reference currency differs from that of the investor’s country of residence. Funds whose investment policy focuses on specific markets or sectors, such as emerging markets, are generally more volatile than broader, diversified allocation funds. In the case of a volatile fund, fluctuations may be particularly significant and the value of the investment may decline sharply and suddenly. The performance shown does not take into account any fees or commissions charged upon subscription or redemption of units or shares of the fund. The portfolios, products and securities presented are subject to market fluctuations and no guarantee can be given regarding their future performance. Tax treatment depends on the individual circumstances of each investor and may be subject to change. 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