Geopolitical tensions, inflation fears and shifting interest rate expectations have created a challenging backdrop for bond investors. Dickie Hodges, manager of the Nomura Global Dynamic Bond fund, discusses with the FundCalibre team why these periods can also create attractive opportunities, how rising yields have transformed the outlook for fixed income, and why today’s market looks very different from a decade ago.
The conversation covers credit spreads, emerging market debt, financial bonds and the importance of maintaining liquidity. Also explored – how hedging strategies are used to reduce portfolio risk without sacrificing return potential, before finishing with an outlook for the remainder of 2026 and where the most compelling opportunities currently lie.
Why you should listen to the interview: If you’ve wondered whether bonds are attractive again, this interview provides a clear explanation of today’s market.
It explores where experienced managers are finding value, why higher yields matter, how geopolitical risks are influencing portfolios, and why careful hedging could play an important role in navigating uncertain markets.
This interview was recorded on 2 July 2026. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Why geopolitical shocks create opportunity, not just risk
“Geopolitics is something which I think we’ve all got to get a bit used to. It’s not going to go away anytime soon. Obviously we’re used to Iran, the US and the conflict that’s going on there. We’ve had conflict elsewhere in the Middle East, and of course we’re still looking at Ukraine and Russia.
“The next one is almost certainly going to be China and Taiwan, and whether there will be international sanctions if that develops into a geopolitical event that affects asset prices. From my point of view, it is something we’re likely to see over the next 18 months. It will almost certainly lead to weakness across asset prices, whether that’s equities, credit, fixed income or emerging markets. But what you’ve got to remember is that these events also create opportunities.
“We’ve got liquidity available in the fund, and we’re actually looking for periods like this to push prices lower, allowing us to participate again at much more attractive levels in the future.”
Inflation will continue to fall
“As oil comes down, and as wars eventually come to an end – which historically they always have done – we’ve got subdued demand compared with where we were before the conflict. We also have elevated interest rates and much higher costs across the economy.
“In the UK, utility bills remain exceptionally high and wholesale energy prices are still significantly higher than in many other parts of the world. All of that suppresses demand. So our view has always been that inflation will eventually roll over, and that’s exactly what we’re beginning to see today.
“It was only the other day that European inflation numbers surprised on the downside. CPI had been expected to fall from around 3.5% to 3%, but instead it came in at 2.8%. Shortly afterwards, HSBC suggested that rather than further rate hikes, the European Central Bank is now more likely to begin cutting rates during the first half of 2027.
“That coincides with Brent crude falling back into the low $70s. Had oil stayed above $100 or even $120 a barrel, we’d probably be having a very different conversation. For us, these energy shocks are transitory. We’ve yet to see them feed meaningfully into broader economic inflation, and that’s why we still believe inflation ultimately continues to move lower.”
Why the fund isn’t buying traditional corporate bond markets
“Arguably, investment grade and global high yield aren’t particularly attractive today if you’re coming from a point where credit spreads are already close to historical tights. The reason spreads have remained so tight is because investors are focused on the all-in yield.
“If UK government bonds are yielding around 4.5% and you add another 0.75% or 1% for lending to companies, suddenly you’re looking at yields of around 5.5%. Compared with the decade after the financial crisis, when interest rates were close to zero, that naturally looks attractive.
“But from my perspective, the spread itself – the additional compensation for taking corporate risk – doesn’t look especially compelling anymore. That’s why I only have around 2% invested in global investment grade credit and roughly 1% in global high yield. I simply don’t see enough future capital return there.
“Instead, we’re looking for areas where we believe we can generate both attractive income and capital appreciation. Financial subordinated debt continues to offer that. We also see opportunities in emerging markets, provided they’re sufficiently liquid and we can manage the associated risks.”
Why South Africa remains one of the fund’s standout investments
“People often ask about our emerging market exposure, particularly South Africa, and immediately jump to geopolitical risk. My response is usually that there’s as much geopolitical uncertainty in the United States today as there is in many emerging markets.
“If we cast our minds back to 2022, UK government bonds delivered around -25%, while UK index-linked gilts fell roughly -34%. Investors lost a significant amount of money in assets that many would traditionally have regarded as safe.
“South Africa, by comparison, delivered positive local currency returns despite everything happening in global markets. Once fully hedged back into sterling, investors still generated a positive return.
“We continue to hold exposure there today. Yields have fallen, just as they have elsewhere, but we still believe there’s a much greater probability of generating both income and capital returns than in many developed market bond sectors.
“The key, though, is liquidity. We’re not investing in illiquid frontier markets where getting your money back could become a problem. We focus on emerging markets where trading is efficient, transaction costs remain low, and we can adjust positions whenever we need to.”
Conclusion: While headlines continue to focus on wars, inflation and political uncertainty, this discussion highlights why today’s bond market offers opportunities as well as risks.
From attractive yields and selective emerging market exposure to active hedging strategies and disciplined portfolio construction, the interview explains how investors can look beyond the noise.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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