Resilient Strategies in a Volatile Month
Both European and US equity markets faced significant headwinds in March. The EuroStoxx 50® Total Return fell by -3.84%, while the S&P 500® Total Return declined by -5.63%. Market volatility surged, with the VStoxx® index rising to 22.1%, reflecting increased investor uncertainty. Credit spreads also widened, as the iTraxx Crossover® (S42) moved from 289 to 318 basis points.
Convertible Bond Arbitrage: A Resilient Strategy
European convertible bond markets witnessed a resurgence in March, with €1.7bn in new issuance split evenly between non-dilutive and dilutive structures. Iberdrola and Deutsche Post’s non-dilutive issuances, priced at premiums to par, underscored strong investor appetite for hybrid instruments offering downside protection. Fresenius Medical and Tag Immobilien’s dilutive deals further signalled issuer confidence, with Fresenius structuring a €400m exchangeable tied to its subsidiary.
Corporate actions in the convertible space also picked up. Safran executed a soft-call exercise, and there were several tender offers, underscoring improved market conditions.
In the US market, despite volatility in equities and credit spreads (HY CDX spiking from 309bps to 376bps), portfolios with high-quality names and higher deltas performed resiliently. Notable corporate actions included AXON’s buyback of its 2027 convertible bonds at a premium amid a 210% stock rally since issuance.
Volatility Trading: Navigating Uncertainty
Amidst a broad de-risking trend across asset classes with the threat of tariffs adding a layer of uncertainty, markets remained orderly without signs of panic.
The VStoxx® forward curve steepened, with April futures rising 2.20 points to 21.00%, while realized volatility in Europe exceeded implied levels by 2.16%. In the US, the VIX® futures curve inverted briefly, with April contracts closing at 20.84% versus 19.38%.
Equity Strategies: Quiet but Positive
Bank consolidation remained a key theme in Europe, with several unsolicited takeover bids in Italy and Spain.
Banco BPM has revised its offer for the acquisition of Italian asset manager Anima, increasing the bid from €6.20 to €7.00 per share, with the transaction anticipated to close successfully by mid-April. Meanwhile, BBVA’s proposed takeover of its domestic peer Sabadell remains in limbo, pending approvals from both competition authorities and the government. Unicredit is advancing its plans to formally launch a bid for Banco BPM, adding further complexity to the consolidation landscape in European financials.
In addition, we are closely monitoring developments surrounding potential mergers between Banca MPS and Mediobanca, as well as BPER and BPSO in Italy. These situations are fluid and multifaceted, presenting dynamic opportunities for investment and trading as the narratives unfold. The ongoing consolidation efforts within the sector continue to generate compelling prospects for strategic positioning.
Macro Trading: Gold Shines Bright
Gold continued to solidify its position as a preferred safe-haven asset during March, driven by escalating geopolitical tensions and concerns about fiscal exuberance. Central banks in emerging markets have increasingly diversified away from USD-denominated assets, further supporting demand for gold. The precious metal has also benefited from fears of deglobalization under the new U.S. administration, which has introduced aggressive tariff policies targeting multiple trading partners.
The oil market experienced sharp price swings in March as traders grappled with a quartet of headwinds, weaker demand, stronger supply, trade tensions, and geopolitical risks. OPEC+ surprised markets by announcing a significant production hike for May, reversing previous cuts and exacerbating concerns about oversupply. At the same time, the escalating trade conflicts between the U.S. and China have raised fears of a global recession, dampening demand expectations.
Outlook
Trade policy developments will play a pivotal role in shaping currency movements and broader market sentiment, and we remain cautious as we observe developments.
Investors will need to balance risk-taking with disciplined portfolio management as they navigate shifting fiscal policies, liquidity trends, and geopolitical frictions in the quarters ahead.
Risk Warning
The views and opinions expressed are the views of Boussard & Gavaudan and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.
Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. Capital security is not guaranteed.