Hermann Bantleon: Iran conflict necessitates tactical duration management

The global market environment has shifted due to the Iran conflict, requiring a move from strategic to tactical duration management for fixed-income portfolios, according to Hermann Bantleon. Senior Portfolio Manager Maksim Hrupin noted that the constructiverisk-on environment at the start of 2026 was abruptly halted in March by the outbreak of the Iran conflict.

The conflict triggered an energy price shock, leading to increased inflation and a repricing of interest rates. While a recently agreed ceasefire has stabilized bond markets, interest rates remain structurally elevated, the yield curve flatter, and the term premium significantly reduced. This necessitates a selective, tactical approach to duration management for benchmark-oriented EUR investment-grade portfolios, rather than a strategic, long-only duration exposure.

Hermann Bantleon reports that high-quality bonds such as covered bonds (+0.9%), quasi-sovereign bonds (+1.37%), and Eurozone government bonds (+1.28%) have performed relatively well in the year to date despite interim volatility. Investment-grade corporate bonds also achieved positive returns (1.31%), but sectoral diversification proved crucial. Technology and automotive sector bonds returned just under 1%, while classic cyclical sectors like oil (1.56%) and basic materials (1.54%) benefited from supply chain disruptions caused by the conflict.

Looking ahead to the end of 2026, the company anticipates a more tactical approach to duration. Higher interest rates, a flatter yield curve, and a reduced term premium call for flexible management within defined interest rate bands – reducing duration when yields rise above a certain threshold and selectively rebuilding it when they fall. Shorter maturities are expected to gain attractiveness as a stabilizing component offering carry and liquidity. Overall, 2026 is projected to be a positive but differentiated year for the bond market.