Investment Committee - October 2026
Short Treasuries, Greater Selectivity
The Committee's Call
We decided to deploy available dollar cash into short US Treasuries and exit a dividend equity allocation whose banking exposure had become undesirable as credit conditions weakened. Compared with September, we are now willing to add limited US duration and have withdrawn our preference for banking dividend exposure. The overall posture remains defensive: higher yields offer an opportunity, but sovereign stress and rising financing costs argue for controlled exposure.
Attractive Income Without a Long Duration Commitment
The committee examined whether the rise in Treasury yields had finally created a useful entry point. With the US ten-year yield above 5% and the long end under continued pressure, the income available from government bonds deserves attention. However, fiscal borrowing, resilient nominal growth and renewed inflation pressure mean yields could rise further. A generous coupon does not remove the risk of capital losses.
The discussion weighed the potential gains from falling yields against the consequences of entering too early. We concluded that the opportunity is more appropriate in short US Treasuries, with a preference for maturities up to five years, where we can earn income while limiting sensitivity to another sell-off. This is a measured move from cash into sovereign exposure, with longer maturities still requiring clearer evidence of stability.
Currency also matters. Dollar cash already available within mandates can fund the Treasury allocation; the decision does not require a fresh directional currency position. In euros, the committee considered overnight rate exposure as a way to earn income while preserving flexibility. That remains a proposal subject to implementation costs and counterparty considerations, rather than an announced allocation.
Credit Stress Changes the Equity Selection
Higher government yields are filtering into the financing conditions faced by companies. The committee highlighted widening high yield spreads and the difficulty of assessing private credit, where limited transparency can delay recognition of stress. Banks sit close to that transmission mechanism through their lending books and sovereign exposures.
France illustrates the risk. Its ten-year borrowing cost approached 4.9%, with the spread over German Bunds around 140 basis points. Fiscal and political uncertainty has pushed French borrowing costs above those of Italy and Greece. That divergence complicates European monetary policy and strengthens our case for avoiding additional euro duration until spread volatility settles.
Equity headline strength also conceals weaker participation. Technology continues to support major US indices, while smaller companies and rate-sensitive sectors face tougher conditions. Our systematic models have also reduced equity exposure as financing conditions tightened. A dividend label alone therefore offers insufficient protection: the underlying sector exposures must remain consistent with the risks we are prepared to hold.
The AI discussion reinforced this selectivity. Hyperscalers are committing more capital to physical infrastructure, changing the economics of businesses historically valued for their scalability. The committee questioned how those commitments would behave in a downturn. For portfolios, the emphasis remains on credible cash generation and financing resilience when assessing technology exposure.
Positioning
Asset class | Stance | vs. last committee | Committee view and implementation |
Equities | [Defensive] | ▼ | Reduce banking and systematic equity exposure; scrutinise financing needs and concentrated technology leadership. |
Fixed Income | [Constructive] | ▲ | Add short US Treasuries, favouring maturities up to five years; avoid additional euro duration. |
Commodities & Energy | [Overweight] | = | Retain the previous allocation, with gold supported by uncertainty and energy exposure monitored for weakening momentum. |
FX | [Neutral] | = | Fund Treasury exposure from existing dollars; make no further immediate directional currency adjustment. |
Alternatives | [Overweight] | = | Retain the previous allocation pending an explicit committee reassessment. |
We are constructive on short US Treasuries while remaining selective across fixed income. Equities remain defensive, with lower systematic exposure alongside the banking adjustment.
What Would Change Our Mind
Orderly yields and easing inflation pressure: Greater confidence that sovereign yields are stabilising would support consideration of longer maturities.
French spread stabilisation: Sustained improvement in European sovereign conditions would reopen the case for euro duration.
Broader credit deterioration: Stress spreading through corporate funding and bank balance sheets would prompt another review of equity risk.
Conclusion
Higher yields now justify a limited deployment of cash, with maturity discipline central to the decision. We will keep reviewing exposures as financing conditions evolve, preserving flexibility while reducing risks that the income available no longer adequately compensates.
This presentation is intended for informational purposes only and does not constitute an offer or solicitation to buy or sell any financial instruments or services. Any investment involves risks, including the potential loss of capital, and past performance is not indicative of future results.
