September, 2023
For the month ending September, the CC JCB Global Bond Fund – Hedged Class returned -1.94% (after fees), underperforming the Bloomberg Global G7 Total Return Index Value Hedged AUD.
The portfolio endured underperformance in the month of September as bond markets had a challenging month . The longer end of the market was under pressure with concerns emanating over the increase in supply and that inflation expectations could remain sticky. With US employment data exceeding expectations, US inflation prints for August were in line with consensus. Late in the month at the US Federal Reserve (US Fed) meeting, there was a hawkish tilt to the US Fed’s median dot projections for 2024 and 2025 which pushed global yields higher into month end. US Fed Chair, Jerome Powell, commented that the US Fed was “prepared to raise rates further if appropriate” emphasising that the US Fed would “proceed carefully”. In Europe – inflation rolled over in September to 4.3% from 5.2% in August. This resulted in rates markets pricing out any possibility of an October rate hike from the European Central Bank.
Curves steepened through the month as the issuance profile and inflation expectations continued to put pressure on the longer end of the yield curve along with the diminishing buying from international Central Banks. The aggressive rally in oil through the month following Saudi Arabia and Russia’s commitments to persist with productions cuts through until December 2023 was the contributory factor to the 9% gain in the energy complex. The higher energy prices stoked fears the current period of stalling inflation would end and make it hard for the Central Banks to keep it under control, although ultimately it is a consumption tax and a drag on growth. The portfolio continued to favour shorter end Treasury bonds and was underweight in Japan and Italy .
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/6526142377601c4a757f7c7c_CC-JCB-Global-Bond-Fund-Hedged-Class-Monthly-Report-September-2023-2.pdfJune, 2023
For the month ending June, the CC JCB Active Bond Fund - Class A units (the Fund) returned -2.46% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index.
Further hawkish rhetoric and a number of developed market central banks continuing the rate hiking journey saw bond yields broadly trade higher over the month of June, aided by resilient job markets and ongoing inflation concerns.
The FOMC delivered a ‘hawkish pause’, after ten consecutive meetings of rate hikes with the Fed Funds rate kept at 5.25%, allowing the lagged effects of monetary policy to continue to strangle demand and put a dent in inflation . US headline CPI had printed at 4.0% in the days prior to the meeting, which allowed the US Federal Reserve to ‘skip’ further rate hikes this month, although the fight is by no means over.
The Reserve Bank of Australia (RBA) surprised the market with another rate hike to 4.1% in June following on from the Fair Work Commission decision to increase the minimum wage by 5.75%. In a speech the day after the RBA Board Meeting, Governor Lowe noted the ‘narrow path’ the Australian economy is treading whilst trying to maintain healthy employment levels and at the same time decrease inflation expectations and allay fears of the damage that a wage spiral may have on the economy. The Board meeting minutes showed the decision was ‘finely balanced’ . With the monthly CPI number released late in the month showing a 5.6% yoy increase, down from 6.8% the prior month, we believe the RBA are winning the fight against inflation.
Elsewhere, we saw the Bank of Canada implement a surprise 25 basis points (bp) hike to 4.75%, and Bank of England 50bp hike to 5.0% as expected. The European Central Bank also moved in line with expectations and hiked 25bps to 3.5%. In addition, the Norges Bank hiked 50 bps to 3.75%, the Swiss National bank hiked 25 bps to 1.75%, and the Riksbank hiked 25 bps to 3.75%.
We believe that central banks are approaching the mature stages of their hiking programs, and we are getting close to terminal rates in most developed markets. Rates are now sufficiently restrictive to see a slow down in demand and refinancing risks for corporates who are coming off honeymoon rates that were locked in during the ultra low-rate period of the pandemic. So far, the consumer has been remarkably resilient, and it is too early to be even thinking about rate cuts. The time is near for central bankers to take stock and allow tight monetary policy to work its way through the economy.
The most notable moves in bond markets were in the front end which led the sell off to higher yields. This resulted in a flattening of global yield curves, with the US 2s10s curve closing back at -106 bps (near the pre SVB close), and the Australian 3s10s bond futures curve moving from 20 bps to 2 bps. Flatter yield curves (especially prolonged negative yield curves) have historically been a reliable indicator of pending recessions; however, they do take time.
The JCB portfolios entered long duration positioning at 3.75% in 10 year Australian Commonwealth Government Bondss, and then added further duration at the 4% level. These are levels we have been targeting as the top end of the range and are levels that we see to be a sufficiently restrictive level from a monetary policy perspective. It is also an attractive level when compared to the earnings yield of the S&P 500 (around 4.1%) when you can invest in a continuously compounding and self-correcting asset class of high-grade bonds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/64b08acde5b8f9ef35f62c27_CC-JCB-Active-Bond-Fund-Monthly-Report-June-2023-1.pdfMarch, 2023
For the month ending March, the CC JCB Active Bond Fund - Class B units (the Fund) returned 3.58% (after fees), outperforming the Bloomberg AusBond Treasury (0+Yr) Index.
March 2023 is one of the months that will go down in history as one of the most volatile of all time. The MOVE Index (the bond market version of the VIX that measures daily volatility) hit levels not seen since the depths of the COVID-19 crisis of March 2020. Over a period of 13 trading days straight, the 2yr USTs traded an unprecedented 20 basis point (bp) daily range. These are not normal times! So what happened..?
The biggest event was the collapse of Silicon Valley Bank (SVB) which sent shockwaves through the financial markets. It was March 7th when US Federal Reserve, Chair Jerome Powell, noted "Nothing about the data suggests to me that we've tightened too much" before the Senate Banking Committee. By March 8, SVB was in trouble and raising capital, and two days later SVB was gone. This is an example of the ferocity of the financialisaton of the banking work, with deposits in the order of $42bn withdrawn in a matter of hours via online transactions, in a practice that back in the days of the GFC would have taken weeks to see people lining up once the branch opens on a given morning.
The next bank to fall was Credit Suisse, an institution with 160 years of history, and then rumours also were swirling about Deutsche Bank being in trouble, although this was driven by a CDS trade with a measly notional of just $5million. This is a minor trade in the scheme of things, but we are not living in normal times.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/643f55c98dc59db32cba5c75_CC-JCB-Active-Bond-Fund-Class-B-Monthly-Report-March-2023-1.pdfDecember, 2022
For the month ending December, the CC JCB Active Bond Fund - Class A units (the Fund) returned -2.37% (after fees), performing in line with the Bloomberg AusBond Treasury (0+Yr) Index. The main thematics in the month from a forward looking macro-economic perspective into 2023 focused on the opening up of China from Covid-19 restrictions, a pivot from the Bank of Japan (BOJ) monetary policy, continued hawkish viewpoints from the European Central Bank (ECB) and validation of peak global inflation.
Despite the lower than expected November US CPI print mid-month which came in at only 0.1% and was the second consecutive downside miss, the bond market could not sustain the rally into year end. Bond markets were caught off guard from the hawish rhetoric at the ECB meeting on 15th December which came on top of the as expected 50 basis point (bp) rate hike – with President Lagarde suggesting that “a significant rise at a steady pace means that we should expect to raise interest rates at a 50 bp pace for a period of time” .
The BoJ also sprung a hawkish surprise into Christmas as they modified their long held Yield Curve Control policy as they widened the range by 25 bps with a maximum yield on 10yr Japanese bonds increased to 0.5%. This saw Japanese yields jump by over 20bp and the Yen rallied by almost 4% on the day. The final blow for bond markets into year end was the announcement from Chinese authorities that all Covid-19 quarantine measures would be removed from 8 January ramping up expectations of a pick up in demand and growth through the global economy in 2023.
The heavy bond supply calendar in January also resulted in front loaded selling into diminished holiday market liquidity that exacerbated the global bond market weakness for the month. Australian rates market underperformed sharply into year end with low liquidity evident as corporate deal related selling, hedge fund futures selling and semi -government supply, were all micro factors that augmented the bearish sentiment from the BoJ hawish move and the eagerly awaited reopening of China.
The fear that the higher yields emanating from Japan as a result of their tilt to monetary policy hit Australian bonds the hardest in expectation of Japanese investors reducing their foreign bond exposures. Looking forward the portfolio will look to tactictally explore the ranges as the anticipated slowdown in global growth from the rapid increase in financing costs is balanced against the Central Banks assessing their 2022 mandate to slay the inflation dragon and the implications of the re-opening of the Chinese economy .
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/63c49de74ebe4d004badb8c1_JCBABF_A_202212-1.pdfSeptember, 2022
For the month ending September, the CC JCB Active Bond Fund - Class A units (the Fund) returned -1.46% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index.
Hawkish central banks. Higher than expected inflation and other upside data surprises. These two headlines could have led most of the monthly commentaries for 2022, however what was added to the month of September was a UK ‘mini-budget’ which contained fiscal easing measures that led to an unprecedented sell off in UK Gilts in the manner of a VAR shock, taking global rates for the ride, finishing the month significantly higher in yield.
As the inflation genie continues to surprise to the upside, central banks continued to raise their respective cash rates. In September, these included hikes from: FOMC (+75bps) RBA (+50bps), Riksbank (+100bps), BoC (+50bps), SNB (+75bp), Norges Bank (+50bp), and BoE (+50bp). The UK mini-budget was nothing short of a disastrous piece of policy as the Truss government announced measures to ease fiscal conditions with proposed tax cuts and significantly larger borrowing programs for the UK . This saw a Gilt led sell-off, taking global fixed income yields higher, before the Bank of England needed to step in and buy Gilts to “restore orderly market conditions”, effectively emergency QE. Overall bond volatility continued in September, with the US 10y Treasury trading an 85bp range (3.17% to 4.02%, closing the month 64bp higher. The MOVE Index (a measure of bond volatility) was seen to reach a high of 159, which is only just below the record of 164 seen in 2020.
Australian bonds outperformed comparatively, closing the month 31 basis points higher. The key driver of the outperformance was the improved budget measures announced by Treasurer Jim Chalmers, as well as an RBA that hinted most of the hard lifting had been done by the RBA in the current rate hiking cycle, and the speed of the hikes was to slow.
The higher bond yields and hawkish central banks continued to weigh on risk assets, with fears of recession becoming common place, and seemingly the narrative in markets is now that good news (i.e. better data) is bad news (Central banks need to do more and risk markets will continue to be hit).
The Fund was positioned with a mild bias to underweight duration and curve flattening positions , but then had a small draw-down in the volatility of the final week of September with the 30y point of the Australian bond curve flattening aggressively, detracting from performance. Overall, the Fund was broadly flat to benchmark returns for the month before fees.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/6347a0740a061f0321cf60c4_CC-JCB-Active-Bond-Fund-Monthly-Report-September-2022.pdfJune, 2022
For the month ending June, the CC JCB Active Bond Fund - Class A units (the Fund) returned -1.39% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index. Central Banks were out in force tightening monetary policy in the month of June as the US Federal Reserve delivered a 75 basis point hike and the Reserve Bank of Australia lifted the cash rate by 50 basis points. The hawkish tone triggered an aggressive sell-off in rates which led to extended losses in risk markets, and saw US equity markets enter bear market territory, led by the NASDAQ (proxy for growth assets) which sold off 8.7% in the month of June to be down close to 30% since the turn of the year.
The first half of 2022 has been very difficult for bond markets with the worst returns for sovereign bond funds going back decades, let alone funds that have credit exposure added to their sovereign holdings. Green shoots are appearing for bond holders now, with the asset class now beginning to exhibit the diversifying characteristics to listed risky asset markets that we have come to expect over time. In fact, while bond markets were the first asset class to see substantial losses this year, since their lows on June 22nd, we have seen a positive return, whilst equities have continued their slide. Going forward, JCB believes bond markets could continue to provide solid returns over the rest of the year as recessionary fears appear certain to increase and then very likely be crystalised in the next 6 months or so.
A global recession is now expected as the base case outcome with demand destruction and weakening momentum widely evident in many leading data releases. JCB also believes it is likely that the US economy has already entered a technical recession, as the widely followed Atlanta Federal Reserve GDP nowcast model suggests that current Q2 GDP is -2.1% as at the end of June, following on from a -1.5% in Q1.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/62d753e042cb6a51eb588452_CC-JCB-Active-Bond-Fund-Monthly-Report-June-2022.pdfMarch, 2022
For the month ending March, the CC JCB Active Bond Fund - Class A units (the Fund) returned -4.16% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index. The selloff in global bond markets accelerated in the month of March to reach higher yield levels not seen since the previous U.S Fed hiking cycle of 2018.
Three core themes have continued to dominate markets:
- higher inflation in terms of both realised inflation and forward looking expectations
- increasingly hawkish Central Bank policy and;
- geopolitical risks.
Global supply chain issues, as well as pent up demand has seen inflation continue to move higher in developed markets, with the U.S Consumer Price Index data showing an annual rate of 7.9%. The U.S Federal Reserve officially kicked off their rate hiking cycle with a 25 basis point hike at the March Federal Open Market Committee (FOMC) meeting. Jamieson Coote Bonds has long been of the view that the U.S Federal Reserve have been behind the curve in their tightening cycle and had seen a 50 basis point hike as a good opportunity to send a strong message to the market of their intentions to dampen inflation. A more conservative path was chosen by the FOMC as the uncertainty reigned strong with the Russian invasion of Ukraine. Markets are now almost fully priced for 50 basis point interest rate hikes by the U.S Fed at the next meeting in May, with a terminal price of around 2.75% priced into markets, before an economic slowdown will see rate cuts in the second half of 2023. The aggressive pricing saw the U.S bond curve flatten. In the front end of the U.S bond curve, 2y United State Treasuries (UST) sell off 90 basis points for the month to finish at 2.33%, while 10y USTs sold off 51 basis points to 2.34%. Historically, curve flattening is a consistent predictor of pending recessions over the next 18-24 months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/62561e475d21e5df91c7ce1f_CC-JCB-Active-Bond-Fund-Monthly-Report-March-2022-2.pdfMarch, 2022
For the month ending March, the CC JCB Active Bond Fund - Class A units (the Fund) returned -4.16% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index.
The selloff in global bond markets accelerated in the month of March to reach higher yield levels not seen since the previous U.S Fed hiking cycle of 2018. Three core themes have continued to dominate markets:
- higher inflation in terms of both realised inflation and forward looking expectations
- increasingly hawkish Central Bank policy and;
- geopolitical risks.
Global supply chain issues, as well as pent up demand has seen inflation continue to move higher in developed markets, with the U.S Consumer Price Index data showing an annual rate of 7.9%. The U.S Federal Reserve officially kicked off their rate hiking cycle with a 25 basis point hike at the March Federal Open Market Committee (FOMC) meeting. Jamieson Coote Bonds has long been of the view that the U.S Federal Reserve have been behind the curve in their tightening cycle and had seen a 50 basis point hike as a good opportunity to send a strong message to the market of their intentions to dampen inflation. A more conservative path was chosen by the FOMC as the uncertainty reigned strong with the Russian invasion of Ukraine. Markets are now almost fully priced for 50 basis point interest rate hikes by the U.S Fed at the next meeting in May, with a terminal price of around 2.75% priced into markets, before an economic slowdown will see rate cuts in the second half of 2023. The aggressive pricing saw the U.S bond curve flatten. In the front end of the U.S bond curve, 2y United State Treasuries (UST) sell off 90 basis points for the month to finish at 2.33%, while 10y USTs sold off 51 basis points to 2.34%. Historically, curve flattening is a consistent predictor of pending recessions over the next 18-24 months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/62561e475d21e5df91c7ce1f_CC-JCB-Active-Bond-Fund-Monthly-Report-March-2022.pdfSeptember, 2021
For the month ending September, the CC JCB Active Bond Fund - Class A units (the Fund) returned -1.79% (after fees), outperforming the Bloomberg AusBond Treasury (0+Yr) Index.
Domestically the Australian rates market underperformed its global peers through the month which caught the market off-guard, particularly given the weaker economic data, increasing Covid-19 cases and the RBA extending its buying mandate until mid-February 2022 from its initial November 2021 end date. Coupled with those RBA actions, Governor Lowe reinforced that conditions for a rate hike would likely not be achieved until 2024. The market ignored the fundamental reasons which were expected to be supportive and pivoted lower in the second half of the month as it continued its thematic for 2021 with a reversal lower following completion of the quarterly Australian bond futures expiry roll, like what was witnessed in March and June.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/61667ce88e3cdc9ff456ec64_JCBABF_A_202109.pdfJune, 2021
For the month ending June, the CC JCB Active Bond Fund - Class A units (the Fund) returned 0.97% (after fees). The Fund underperformed the index in what was a month of two halves. The U .S. Fed meeting mid-month caught global financial markets off guard and stalled the 20 bp rally in Australian rates, although the global rates rally continued into month end defying the bearish rates consensus and positioning. The quarterly expiration of the Australian rate futures exaggerated some price moves although the underlying theme for the month was curve flattening and Australian rates outperformance of its peers.
The Fund trimmed some exposure in the long end of the curve and deployed some micro curve structures in the belly of the curve as JCB took advantage of the U.S. Fed inspired cheapening in the shorter end. The U.S. Fed meeting on 16 June triggered volatility through markets although the U .S. Fed kept the target range at 0-0.25% it altered the pathway of projections with the FOMC dots projecting 2 hikes in 2023 and comments from U .S. Fed Chairman Powell suggested that the U.S. Fed was more hawkish than what the market had priced in.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/60ee3460a5e1234088cee01c_JCBABF_A_202106.pdfApril, 2021
For the month ending April, the CC JCB Active Bond Fund - Class A units (the Fund) returned 0.53% (after fees), underperforming the Bloomberg AusBond Treasury (0+Yr) Index. The Australian bond market stabilised for the month of April grinding higher in price through the month and outperforming its global peers after decent buying emerged into the compelling 1.80% area which remains attractive, with the RBA on its lower for longer regime.
Through the month the Fund participated in the ACGB Nov-2032 syndication and JCB used the cheapening into that pricing to take off its short Australian 10s exposure, as the market failed to follow through on the improving economic data that was appearing from around the globe. The Fund also participated in an Asian Development Bank 2025 Gender bond syndication. That part of the curve remains compelling on a carry and roll basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/6099d93fb6a9340bf1eac453_JCBABF_A_202104.pdfMarch, 2021
For the month ending March, the CC JCB Active Bond Fund - Class A units (the Fund) returned 1.03% (after fees), outperforming the Bloomberg AusBond Treasury (0+Yr) Index. The Australian bond market stabilised for the month of March following its underperformance in February as the triggers for the corrective move dissipated, and buying interest emerged ahead of the alluring 2% level on Australian 10yr yields.
The RBA left the cash rate and the 3-year yield target unchanged at 0.1% and reaffirmed its commitment to keep rates on hold until 2024. The Australian 10yr yield stabilised despite better than expected Q4 GDP data at 3.1% quarter on quarter and a fall in the unemployment rate to 5.8%, which was already priced into the market. The expected return to the market of Japanese investors as their fiscal year commences and negative net supply narrative provided a solid framework for a consolidation period in Australian rates .
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/60754fa54b63ae79a86e9203_JCBABF_A_202103.pdfDecember, 2020
For the quarter ending December, the CC JCB Global Bond Fund – Hedged Class (the Fund) returned -0.04% (after fees), underperforming the Barclays Global G7 Total Return Index Value Hedged AUD. In December, Gilt outperformed G7 peers as Brexit uncertainty and the new Covid19 strain found in England led to safe haven buying. On the other hand, US Treasury underperformed on the optimism of Pfizer -BioTNTech and Moderna vaccine and the US Congress passing the new fiscal stimulus.
German bund was caught between the re-emerging of infect cases and vaccine/fiscal headlines, ending the month flat. Supported by the ECB’s accommodative monetary policy and favourable net cash requirement outlook in 2021, Italian yield spreads to the German bund tightened almost 9 basis points to 111 basis points. The Underlying Fund benefited from the underweight in US Treasury.
Meanwhile, the short duration in the Italian market dragged the performance. The results of Georgia’s senate runoffs on 5 January 2021 will decide whether Democrats could control both the US Congress and White House in the next two years. If this happens, it could have a profound impact on the fiscal policy. The Hedged class (to AUD) was slightly positive (0.04%) for the month from an absolute perspective, with the AUD/USD strengthening around 4.75% in December
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/5ffe94d5eeb17b8b7466f419_JCBGBH_202012.pdfticker: CHN4711AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.channelcapital.com.au/resources-fund-documents
Lower mid -> CC JCB Global Bond Fund -> Performance Report -> December 2020 (hedged)
manager_contact_details: Array
asset_class: Fixed Income
asset_category: Bonds - Global
peer_benchmark: Fixed Income - Bonds - Global Index
broad_market_index: Global Aggregate Hdg Index
structure: Managed Fund
fund_features:
CC JCB Global Bond A Hedged aims to outperform the Bloomberg Barclays Global G7 Total Return Index Value Hedged in AUD and with better risk-adjusted returns (after fees) on a rolling three-year basis. To use fundamental and technical analysis to make individual bond security selections and adjust duration exposures (against the Benchmark) with a view to generating the optimal risk-adjusted portfolio.
- Manager Address : Level 26 1 O’Connell Street, Sydney NSW 2000
- Phone : 1800 940 599
- Website : https://www.channelcapital.com.au/
- Contact Email : enquiries@channelcapital.com.au
- Contact Page : https://www.channelcapital.com.au/contact