March 31, 2026
Commentary
The monthly commentary discusses recent developments across the Ninepoint Diversified Bond, Ninepoint Alternative Credit Opportunities and Ninepoint Credit Income Opportunities Funds.
Please note: as we did not publish a commentary for February, we will incorporate some of the developments of the past two months.
As we prepared for 2026, we highlighted in our November 2025 commentary five key risks to our Outlook.
Of those, three are materializing, and in unexpected ways.
In February, the release of certain AI tools led to doubts about the business model of many software companies. Could AI simply replace their products quickly and much more cheaply? Their stocks fell, and with that, their bonds, as well. As we had expected, AI hyperscalers also issued mountains of bonds, which pushed their credit spreads wider. This concerned us, and as such, we were positioned for that, no software (by luck) and short positions in hyperscalers bonds.
What we had failed to recognize was that private credit funds have also lent heavily to software companies (not the public ones, but private ones that were bought up by private equity firms). So, weakness in software bled into private credit, BDC and other related companies’ stocks (and bonds). As we foresaw, life insurance companies with the largest private credit exposure were also sold heavily, some of them are now trading at very distressed multiples. Coming into 2026, we had made sure to avoid exposure to those sectors and even initiated pair trades to benefit from those potential dislocations. Those are working well.
So, even before the war between Iran and the U.S. started, there were cracks showing up in credit markets. Those two (intertwined) themes of AI disruption/funding and private credit excesses were creating a particularly shaky backdrop for what was to come. Thankfully, coming into 2026, we had light credit exposure and some credit hedges to help protect the portfolios in case some of those risks occurred.
Then on February 28th, the U.S. and Israel began a bombing campaign on the Republic of Iran, disrupting the whole region and creating a colossal hole in the world’s energy supply, pushing crude prices up towards $100 per barrel, triggering a sell-off across the board of almost every asset other than energy. We are by no means energy experts, but our colleagues in the Ninepoint Energy team, led by Eric Nuttall, are, and their input has been invaluable to understand the economic scale and reach of this war, helping us navigate these uncharted waters in real time.
Of course, we did not predict a war in the Middle East, but even before its impact on energy and other commodity prices, U.S. inflation had proven sticky around 3%, and as Chair Powell so aptly said during the March FOMC press conference, the impact of tariffs is taking longer than expected to make its way through the system, and therefore he is preconizing a patient and prudent approach to lowering interest rates any further.
Hawkish central banks, still sticky inflation and a global energy shock are bringing back the memories of 2022. The bond market didn’t need much more. From the lows at the end of February to the peak of March, interest rates across the developed world increased massively as investors quickly started to price-in rate hikes. Europe and Asia are more exposed to energy prices, being large importers, so the impact there was the largest, but North American markets weren’t spared.
To put it in perspective, Figure 1 below shows the evolution of market expectations for changes (hikes or cuts) to the Bank of Canada’s overnight rate and the U.S. Federal Reserve’s Funds Rate, to the end of this year (2026). From the BoC’s current overnight rate of 2.25%, earlier this January, market expectations were for mild odds of a rate hike (+0.20% priced in by year end). By the middle of March, this had jumped to 0.80% of rate hikes priced for Canada by year end, which would have taken the overnight rate above 3%.
In the U.S. (blue line), market expectations were for some rate cuts (~50-60bps) in 2026, but following the energy shock, those had completely evaporated, even pricing-in mild odds of hikes. Of course, rapid repricing of central bank expectations tend to bear flatten yield curves (sell-off more in short-term than long-term bonds). Table 1 below shows the year-to-date change in various key rate tenors and in credit spreads across North America.
There has been nowhere to hide. Interest rates are higher at almost every tenor, and credit spreads are wider by 11-14bps for investment grade (IG) and 77bps for high yield (HY). Generally, while weak, credit has behaved in an orderly fashion, while the most extreme intraday moves were seen in interest rate markets. Our funds performed well throughout the volatility, staying positive on a year-to-date basis (Figure 2 below). This can be attributed to our positioning going into 2026 (light in credit and duration, some credit hedges and pair trades), and to actions we took throughout the month. We monetized and rolled credit hedges, leaned on rates as they were selling off, taking our duration down to only 1-year mid-month, and added as the selloff was overdone, exiting March with 3 to 3.5 years of duration (depending on the mandate).
So why are we now adding duration? In our view, the worst of the sell-off in rates is probably behind us. In Canada in particular, the economy is weak, unemployment is high, and consumption is tepid, with the housing market weighing heavily on both sentiment and core inflation. As Governor Macklem said during the March press conference, if it wasn’t for the energy shock, they would likely be debating whether to cut rates, not hike! On top of that, we still have the upcoming USMCA renegotiation later this year, which could be another negative shock for the Canadian economy. This is a very different situation from 2022: with the economy operating below potential, and inflation at target for more than a year. So, for now, the BoC is on hold. The market pricing-in 3 hikes this year was an overreaction, and we took advantage of it to add duration. As this normalizes, expect us to take profits.
The situation at the U.S. Fed is a little more complicated, as they are still well above target on inflation, but the FOMC is in no rush to hike, keeping a slight cutting bias in their communications. If anything, they might stay on hold all year and wait to see if the energy price shock is persistent enough to feed through to core inflation and assess the eventual damage to growth.
Yes, higher energy prices are inflationary, but they also have important growth costs. The war in Iran, and the damage that is inflicted on energy production and transport infrastructure in the whole Persian Gulf will have lasting consequences for the global economy. Even if the fighting stops tomorrow, molecules won’t make it back to the market immediately. Some of the damage will take months, if not years, to repair. The elasticity of supply is low (i.e. other energy producers cannot pick up the slack that quickly), and the world will therefore be “short” energy for the foreseeable future, keeping prices high and curtailing production or economic activity in some parts of the globe. Europe and Asia are most exposed to this, as they are net energy importers. But if global growth suffers, North America won’t be immune. Domestically, higher energy prices are also a tax on consumption, hurting the lower-income households the most and offsetting a large part of the OBBB fiscal impulse. Finally, market volatility and a general tightening of financial conditions should also depress economic growth in the future.
To conclude: from current levels, interest rates at this higher level are an attractive buy, and we are carefully adding to our exposure. Even before the war, the credit genie was out of the bottle, and if growth falters further, credit will remain under pressure. In any case, at current valuation levels, credit remains extremely expensive, so we aren’t adding, but we like what we own – high quality, lower duration. We will continue to use CDX hedges to manage volatility and maintain the desired exposure.
Table 2 below shows the various statistics and exposures as of month (and quarter) end. As described above, duration went up to just around 3 years, while spread/credit duration remains very low, due to the impact of credit hedges.
Ninepoint Diversified Bond Fund
NINEPOINT DIVERSIFIED BOND FUND - COMPOUNDED RETURNS¹ AS OF MARCH 31, 2026 (SERIES F NPP118) | INCEPTION DATE: AUGUST 5, 2010
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
15YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|---|
Fund |
-0.49% |
0.65% |
0.65% |
1.31% |
2.87% |
5.64% |
1.88% |
2.93% |
3.24% |
3.55% |
Ninepoint Alternative Credit Opportunities Fund
NINEPOINT ALTERNATIVE CREDIT OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF MARCH 31, 2026 (SERIES F NPP931) | INCEPTION DATE: APRIL 30, 2021
1M |
YTD |
3M |
6M |
1YR |
3YR |
Inception |
|
|---|---|---|---|---|---|---|---|
Fund |
-0.75% |
0.59% |
0.59% |
1.13% |
3.48% |
7.08% |
2.85% |
Ninepoint Credit Income Opportunities Fund
NINEPOINT CREDIT INCOME OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF MARCH 31, 2026 (SERIES F NPP507) | INCEPTION DATE: JULY 1, 2015
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|
Fund |
-0.67% |
0.47% |
0.47% |
1.12% |
3.60% |
6.93% |
3.81% |
5.48% |
4.88% |
Conclusion
In the current environment of uncertain and complicated times, a bond manager needs to be active and innovative. This is when we can really showcase the value of our approach to fixed income portfolio management. In fixed income, capital preservation in times of stress is paramount.
Good luck and until next quarter,
Mark, Etienne & Nick
As always, please feel free to reach out to your product specialist if you have any questions.