13 Apr 2026
Spot oil prices have surged following US strikes on Iran, with the Strait of Hormuz - a critical transit route for around a fifth of global oil supply - effectively rendered impassable. While front‑month oil contracts have risen sharply, longer‑dated futures have remained relatively stable, indicating that markets continue to view the disruption as a near‑term shock rather than a lasting supply shift.
Notably, 12‑month Brent futures remain below levels seen during previous periods of stress in 2007, 2010, 2018 and 2022, despite the potential for a significant interruption to global energy flows.
Chart of the month
Oil has broken $100 per barrel, but longer-term pricing is less extreme
Source: Fidelity International, Bloomberg, 12 March 2026.
Overall, we are now running an underweight duration position relative to the benchmark, with the fund around 1.5 years shorter.
While we began the year overweight duration (up to +1.5 years against the benchmark), as bond markets rallied, we steadily reduced interest rate duration, feeling the move was inconsistent with underlying economic data and the rise in energy prices.
We entered the Middle East conflict having reached broadly neutral duration relative to the benchmark, following February’s position trimming.
As events escalated, we reduced duration again in both developed markets (DM) and emerging market (EM) markets, as the market selloff appeared too modest to us relative to the upside risks to oil and gas prices.
A more long-term trend we have seen is the dispersion of 30-year bond yields in developed markets. Driven largely by fiscal, rather than monetary policies, we remain highly active to find opportunities for rates positions in this market environment.
We have maintained our long exposure to UK and US inflation markets while inflation protection looks cheap and geopolitics continues to increase pressure on prices.
We are long 1 year of UK RPI and 1.75 years of US inflation, expressed through 3 and 5year UK swaps and 5 and 10year US swaps, respectively.
Market implied UK inflation has risen sharply alongside the energy spike, and our UK RPI positions have benefited meaningfully from this move. US inflation markets have moved less but have also positively contributed to excess returns.
We believe inflation protection remains attractively priced, especially given the scale of the recent energy driven shock in the US.
We have tactically closed most of our emerging market foreign exchange exposures, reducing the majority of long positions in emerging market currencies amid rising concerns about a potential crisis in the Middle East.
In addition, we further trimmed exposure by exiting our long position in the euro.
Our largest foreign exchange position remains a 12.5% short in sterling, which is used to fund smaller long positions in the Swiss franc and the Norwegian krone.
We also tactically added a 7% long position in the US dollar, which has performed well as the oil shock and broader risk off environment have supported the currency.
We have maintained our short exposure to credit markets via CDX US High Yield and iTraxx Crossover indices.
Recent market developments have not changed our bearish credit view and we have now held these short positions in US and European credit for over a year, given the limited relative value on offer versus government bonds.
During this time, the negative carry we pay for downside protection has been relatively inexpensive given the subdued credit volatility, providing a cost effective hedge against our risk on stance in EM local currency debt.
In February 2026, the fund delivered +1.2% gross returns compared with +1.3% for the benchmark, generating -0.1% of alpha over the month. This performance reflected adverse term structure positioning but benefitted from a short position in credit.
Rates: Our term structure positioning detracted overall during the period. A rise in Norwegian yields worked against our long, and our short in US duration was affected at the end of the month by the fall in US Treasury yields.
Inflation: Our long inflation positions in both the US and UK negatively contributed to performance over the month as inflation break-evens fell across both UK and US markets. This was driven by disinflationary data in the UK and declining US long-term inflation expectations despite resilient short-term measures, meaning the market overall repriced inflation risks lower.
Currencies: Currency positioning contributed positively to performance in February. Select long positions in EM FX performed well, including BRL and MXN as emerging markets benefited from a rally in commodity prices and a fading of USD strength. Our long in EUR (our largest overweight behind CHF) positively contributed, benefitting from hawkish ECB repricing, as well as a strong mid-month rally.
Credit: Our short exposure to credit added positively to performance last month, as credit spreads experienced their most significant widening in several months. Bond markets came under pressure amid fears of AI-driven disruption, rising concerns around private credit, and heightened geopolitical uncertainty.
Past performance does not predict future returns
|
Standard period fund performance* (EUR-hedged, gross of fees) |
1 month |
3 months |
6 months |
YTD |
|
FF – Strategic Bond Y-ACC-EUR (Hedged)* |
+1.2% |
1.3% |
+1.9% |
+4.0% |
|
Index** |
+1.3% |
+1.0% |
+2.2% |
+2.9% |
Source: Fidelity International, 28 February 2026. *Fund performance reflects FF Strategic Bond Y-ACC-Euro (hedged) shares, nav-nav with income reinvested, gross of fees (Ongoing Charges Figure of 0.77% per year applies to Y shares). The Y-ACC-Euro (hedged) share class was launched on 8 March 2011. **Index and relative returns reflect the Strategic Asset Allocation Blend (ICE BofA Q944 Custom Index) until 28 April 2025 and thereafter the Bloomberg Global Aggregate Total Return Index (Currency hedged). Performance data is quoted at the fund's official valuation point. Please note that numbers may not sum exactly to totals shown due to the rounding of figures. Please also note: FF Strategic Bond fund’s name was changed on 19 July 2024 (formerly the FF Sustainable Strategic Bond Fund).