International bond markets were once again strongly influenced by monetary policy decisions and political uncertainties in the fourth quarter of 2025. In the United States, the Federal Reserve reduced the policy rate by 25 basis points in October, in line with market expectations. This step was followed in December by a further 25 basis point rate cut, bringing the Federal Funds Rate target range to 3.50%–3.75%. Although both rate moves were largely priced in at the respective times, the path towards them was volatile. In particular, comments by Federal Reserve Chair Jerome Powell in October, in which he initially left open the possibility of a further rate cut in December, contributed to heightened uncertainty. As the market had already anticipated this move, US Treasury yields reacted with a marked increase. It was not until November that markets stabilised again, after New York Fed President John Williams adopted a markedly dovish tone. As a result, US Treasury yields declined noticeably, and expectations of a further rate cut increased once again. Following the December decision, Federal Reserve Chair Powell emphasised that future monetary policy actions would be highly data-dependent. At the same time, growth expectations for the US economy were revised upwards.

By contrast, monetary policy in the eurozone remained unchanged in the fourth quarter. The European Central Bank made no adjustments to the deposit facility rate in either October or December, leaving it unchanged at 2%. Consequently, the ECB left its key interest rates unchanged for the fourth consecutive time. The ECB saw little need to recalibrate its monetary policy stance and gave no indication of a further rate cut. For European bond markets, this resulted in a broadly calm interest rate environment, with German government bond yields trading within a narrow range.

Political risks also returned to the forefront of investors’ attention. In the United States, Republicans and Democrats failed to reach an agreement on new budget legislation for 2026. This culminated in the longest government shutdown in the history of the United States, lasting 43 days. Large parts of the federal administration were paralysed, hundreds of thousands of federal employees were furloughed, whilst millions of workers in essential services were required to continue working without pay.

In Europe, markets were weighed down in particular by the ongoing government crisis in France. Only a few hours after presenting his cabinet, Prime Minister Lecornu resigned but was reappointed as head of government by President Macron a few days later. The political instability prompted rating agency S&P to downgrade France’s credit rating to A+, while Moody’s revised the outlook for the eurozone’s second-largest economy to negative. As a result, the yield spread on French government bonds (OATs) over German Bunds temporarily widened to almost 90 basis points.

In the foreign exchange markets, the euro was broadly stable overall. Against the US dollar, it appreciated only marginally by around 0.10% over the quarter, whilst gaining approximately 1% against the Norwegian krone. By contrast, the euro depreciated by around 4% against the South African rand, reflecting the continued attractiveness of higher-yielding emerging market currencies in an environment of declining US interest rates. Credit spreads on corporate bonds narrowed significantly over the course of the year.

In this challenging market environment, the LiLux Rent Fund achieved a positive performance of 0.59% in the fourth quarter. On a full-year basis, the gain amounted to 2.61%.