September, 2023
Global government bond markets endured a torrid month as bond yields broadly climbed as resilient labor markets fueled expectations that interest rates would have to remain higher for longer to bring core inflationary pressures back to target. Within duration management, our U.S. Treasury curve steepening position and a short duration bias supported performance as yields climbed due to growing fiscal concerns and as investors focused on the higher-for-longer theme for policy interest rates. A Moody’s warning that a U.S. government shutdown, which was narrowly averted with a last-minute stopgap bill, could hurt the country’s AAA sovereign credit rating also weighed on bond markets. A short Italian duration bias also supported performance after policymakers flagged a wider fiscal deficit due to promised tax cuts. However, a long duration bias to Mexican and Colombian local currency government bonds and New Zealand duration weighed on performance amid a rising yield backdrop.
In foreign exchange markets, the U.S. dollar enjoyed a positive month, amid an upside surprise in core consumer price index inflation, better-thanexpected retail and services activity data and a revised Fed dot plot suggesting fewer interest rate cuts in 2024. The developments resulted in gains for our short positions in currencies including the euro, British pound, and the Polish zloty. However, a short position in the Swedish krona weighed on performance after the central bank raised interest rates.
Our defensive positioning in credit markets had a negative impact on performance as underlying government bond yields broadly climbed during the period. Within sectors, our select exposures to U.S. investment grade and high yield bonds weighed on performance. However, our short exposures to U.S. high yield and U.S. investment grade via credit derivatives supported performance in the latter half of the period as risk markets declined.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-09-30_1697102932.pdfAugust, 2023
The portfolio’s duration ended the period with a neutral bias, lower than the previous month. This was driven mainly by decreasing our U.S. duration bias, particularly in the medium and the longer-end of the curve due to the prospect of increased supplies amid a worsening fiscal backdrop. Broadly, we maintained a steepening bias.
In the eurozone, we broadly moved to a neutral duration bias in Germany from a short position on expectations that the European Central Bank is nearing the end of its policy tightening campaign. This was offset to some extent by increasing our short duration bias in Italy.
In the UK, we neutralised our short duration exposures in the gilt yield curve as economic data pointed to increasing economic headwinds.
Among other high-quality countries, we dynamically managed our exposure to Australian duration and moved towards a long duration stance at the end of the period as the central bank paused raising interest rates amid signs of slowing inflation. Elsewhere, we maintained our long duration stance in New Zealand and our short duration exposure in Japan.
We maintained exposures to inflation-linked bonds and swaps in the U.S. and the UK, where we believe core inflationary pressures are likely to remain sticky.
In emerging markets, we trimmed our long duration positions in Mexican local currency government debt as the central bank kept a cautious outlook on inflation. Elsewhere, we trimmed a long duration position in South Africa. Long positions were maintained in the local currency government bond markets of South Korea, Thailand, Brazil, Colombia, Serbia, Chile, and Indonesia.
In currencies, we dynamically managed our tactical long position on the U.S. dollar by increasing it earlier before trimming the size of the position later in the period. Among key moves, we closed our short euro position as inflationary pressures showed further signs of receding. We also initiated a short position on the Chinese yuan due to widening signs of weakness in the domestic economy and switched to a short position on the Canadian dollar.
Within sectors, we increased our defensive positions in the portfolio due to increased signs of weakness in the global economy. Accordingly, at the end of August, we removed a tactical long bias on European high-yield and increased our credit protection on U.S. high-yield debt via derivatives.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-08-31_1694597060.pdfJuly, 2023
The portfolio’s duration ended the period at around three years, lower than the previous month.
This was driven mainly by decreasing our long duration bias in the U.S., particularly in the front end and the intermediate segment of the curve due to strong growth data. Broadly, we maintained a steepening bias in U.S. longer-dated maturities.
In the eurozone, we broadly moved to a neutral stance on eurozone duration and implemented a steepening bias on the yield curve due to a mixed macro landscape and as policymakers committed to a “datadependent approach” to future rate decisions.
In the UK, we reduced our short duration bias, mainly via trimming our short duration exposures at the long end of the gilt yield curve due to lower-than-expected inflation data.
Among other high-quality countries, we added to a short duration stance in Japan on expectations that the Bank of Japan’s policy change will pressure bond yields higher. Elsewhere, we reduced our long duration stance in Australia and removed a long duration position in Canada.
We maintained exposures to inflation-linked bonds and swaps in the U.S., the UK, and Germany where we believe core inflationary pressures are likely to remain sticky.
In emerging markets, we trimmed our long duration positions in Brazilian and Hungarian local currency government bonds. Elsewhere, long positions were added in local currency government bonds in Mexico and the Czech Republic. Long positions were maintained in the local currency government bond markets of South Korea, Thailand, South Africa, Colombia, Serbia, Chile, and Indonesia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-07-31_1691739321.pdfJune, 2023
The portfolio’s duration ended the period at around five years, higher than the previous month.
This was driven mainly by increasing our duration bias in the U.S., particularly in the belly of the curve as we believe the risks of a recession are growing. Broadly, we increased a steepening bias in longer-dated maturities.
In the eurozone, we broadly maintained our short duration stance as the European Central Bank (ECB) reaffirmed its hawkish rhetoric despite growing economic headwinds. Broadly, we maintained our short duration stance in Germany and France as we expect interest rates to remain on an upward path.
In the UK, we increased our short duration bias, mainly via closing our long duration exposures at the short end of the gilt yield curve as the Bank of England implemented a larger-than-expected interest rate increase and warned more rate hikes were needed to dampen sticky inflationary pressures.
Among other high-quality countries, we kept our long duration positions in New Zealand, Australia, Israel, and Canada on growing concerns of a broadening economic slowdown.
We maintained exposures to inflation-linked bonds and swaps in Germany, U.S., and the UK where we believe core inflationary pressures are likely to remain sticky.
In emerging markets, we trimmed our long duration positions in Brazilian and Hungarian local currency government bonds. Elsewhere, long positions were maintained in the local currency government bond markets of Mexico, South Korea, Thailand, South Africa, Colombia, Serbia, Chile, and Indonesia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-06-30_1689760455.pdfMay, 2023
The portfolio’s overall duration ended the period long duration with exposures, mainly driven by moving to a long duration position in the U.S.
as the Federal Reserve nears the end of its monetary tightening campaign. In the eurozone, we trimmed our short duration stance by reducing our short duration in the long end of the German bund curve as headline inflation slowed in May. We opened a short duration stance in France and maintained our long duration position in Italy.
In the UK, we moved to a short duration stance by introducing a curve steepening bias as inflationary pressures remain persistent in the backdrop of an upcoming heavy issuance calendar.
Among other high-quality countries, we maintained our long duration positions in Australia, New Zealand, and Canada. We held exposures to inflation-linked bonds and swaps in Germany and the UK where core inflationary pressures are likely to remain sticky, in our view.
In emerging market bonds, we reduced our long duration position in South African local currency bonds due to geopolitical concerns and a hawkish central bank. We introduced a long duration position in Chile as President Gabriel Boric was dealt a significant setback to his progressive reform agenda. We also added to a long duration position in Colombia and introduced a short duration position in Poland. Elsewhere, long positions were maintained in the local currency government bond markets of Brazil, Romania, Serbia, India, Philippines, Hungary, and Malaysia.
In currencies, we shifted to a tactical long on the U.S. dollar given a combination of positive short-term data flow as well as positioning and technical dynamics. We continue to believe, however, in the U.S. dollar regime change and hold a bearish view on the currency in the medium term. Among key moves, we shifted to a negative bias on the euro.
Elsewhere, we closed long positions in the Brazilian real, Mexican peso and the Hungarian forint. We also opened a short Chinese yuan stance as economic data deteriorated and shifted to a short position in the South African rand.
Within sectors, we remain cautious on the credit outlook as likely weakening economic growth and tightening liquidity conditions, especially in the U.S., could weigh on fundamentals. Accordingly, at the end of May, we increased our defensive credit hedges in U.S. high yield and investment grade via synthetic credit instruments. We also increased our defensive credit hedges in European high yield.
Throughout, we continued to isolate credit selection from market beta as a potential source of alpha with short-dated investment-grade credit attractive from a risk-adjusted yield basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-05-31_1687267807.pdfApril, 2023
The portfolio’s overall duration ended the period with under one year of duration. We continued to have a short duration position expressed in the U.S. as still-high inflation will likely keep interest rates higher for longer, in our view. In the eurozone, we trimmed our short duration stance by shifting to a long duration stance in Italy due to attractive valuations. However, we maintained our short duration stance in Germany on expectations of more policy tightening.
In the UK, our modestly long duration position was reduced in the latter half of the period as stronger-than-expected inflation data and tight labor markets raised expectations of more interest rate increases by the Bank of England. Among other countries, we increased our long duration position in Australia as policymakers kept interest rates unchanged at a policy review in April.
In other moves, we increased our short duration position in the intermediate section of the yield curve before a policy review by the Bank of Japan. We held exposures to inflation-linked bonds and swaps in Germany where core inflationary pressures are likely to remain sticky, in our view.
File:March, 2023
Bond markets broadly rallied in March as developments in the U.S. regional banking sector and some European banks fueled demand for safe-haven assets including sovereign bonds. Within duration management, short duration stances in the U.S., the UK, Italy, and Japan had a negative impact on performance as bond yields declined broadly in the backdrop of banking sector stress. An allocation to eurozone inflation breakevens also detracted. However, our long allocations to Mexican, New Zealand, Brazilian, Hungarian, South Korean, and Australian local currency government bonds supported performance.
In currency markets, the U.S. dollar weakened as expectations grew that the Federal Reserve would signal a pause in its monetary policy tightening campaign. The dollar also failed to benefit from a broad wave of risk aversion in global markets in March. The developments resulted in gains for our long position in the Colombian peso and a long Japanese yen position expressed using options. A short position in the Taiwanese dollar also supported performance. However, our long position in the Australian dollar weighed on performance.
Within sectors, the portfolio’s risk-seeking positions expressed in credit and equity markets contributed to performance as market sentiment improved in the second half of the month. In particular, exposures to U.S. and European high yield via credit derivatives supported. However, exposures to select U.S. high yield bonds weighed on performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-03-31_1681999533.pdfFebruary, 2023
The portfolio’s overall duration ended the period in negative territory. This was driven in part by adding to a short duration position in the U.S. due to a strong labor market and still-high inflation data.
Within the eurozone, we broadly maintained our overall short duration posture as we kept short duration positions in Germany and Italy on expectations of more ECB policy tightening. In the UK, our short duration position was maintained as we see the challenging backdrop of high inflation, and increased gilt issuance driving yields higher.
Among other countries, we trimmed a long duration position in Australia. Elsewhere we opened a new Japan long adding exposure in the long end of the curve. We also added to our long duration position in New Zealand and switched to a long duration stance in Canada. Elsewhere, we maintained long duration allocations in Israel and South Korea throughout. By contrast, we held to a short duration stance in China.
We held exposures to inflation-linked bonds and swaps in Germany where core inflationary pressures are likely to remain sticky, in our view. In emerging market bonds, long positions were maintained in the local currency government bond markets of Brazil, Mexico, Romania, Serbia, India, Hungary, South Africa, Malaysia, and the Czech Republic.
In currencies, our long U.S. dollar position was reduced as we pivoted toward implementing relative value positions. Among key moves, we moved to a short position in the euro and removed a short position in the Swedish krona. We opened a long position in the Australian dollar while we maintained a short position in the New Zealand dollar. Elsewhere, we added to our short position in the British pound.
Within sectors, we remain cautious on the credit outlook, with the Fed still needing to tighten further amid persistent inflationary forces. Accordingly, at the end of February, we held defensive credit hedges in the portfolio with short positions expressed via synthetic credit instruments in U.S. and European high yield. However, we removed our defensive positions via synthetic credit instruments in U.S. investment grade.
Throughout, we continued to isolate credit selection from market beta as a potential source of alpha with short-dated investment-grade credit attractive from a risk-adjusted yield basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-02-28_1678988473.pdfJanuary, 2023
The portfolio’s overall duration ended the period broadly neutral. This was driven in part by moving to a short duration position in the U.S. due to a strong labor market and improving external demand. Within the eurozone, we increased our short duration posture as we opened a short duration position in Germany. This complemented our existing short posture in Italy on expectations of more policy tightening from the European Central Bank. In the UK, our short duration position was maintained as we expect the challenging backdrop of high inflation and increased fiscal issuance to put gilts under pressure. Among other countries, we opened a long duration position in Australia. Elsewhere, we maintained short duration stances in Canada and China and long duration allocations in Israel, South Korea, and New Zealand. We held exposures to inflation-linked bonds and swaps in the eurozone where core inflationary pressures are likely to remain sticky, in our view. In emerging market bonds, long positions were maintained in local currency government bond markets of Romania, Serbia, India, and the Czech Republic.
In terms of moves, we reduced a long position in Hungary and broadly closed a long position in Chile. By contrast, we added to long positions in Brazil, Mexico, and South Africa. In currencies, our long U.S. dollar position was dynamically managed as we initially increased exposure before trimming again. Among key moves, we added a new long position in the euro due to increased hawkishness from the ECB. We also opened a long position in the Brazilian real and closed a short position in the Australian dollar.
Elsewhere, we opened short positions in the Mexican peso and the Norwegian krone and added to our short positions in the British pound, Israeli shekel, the South Korean won, and the Swedish krona. Within sectors, we remain cautious on the credit outlook as weakening economic growth and rising interest rates could weigh on fundamentals. Accordingly, at the end of January, we held defensive credit hedges in the portfolio with short positions expressed via synthetic credit instruments in U.S. and European high yield. However, we reduced our defensive positions via synthetic credit instruments in U.S. investment grade. Throughout, we continued to isolate credit selection from market beta as a potential source of alpha with short-dated investment grade credit attractive from a risk-adjusted yield basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2023-01-31_1676509163.pdfDecember, 2022
Government bond markets sold off in December driven by hawkish central bank rhetoric, interest rate hikes, and an unexpected decision by the Bank of Japan (BoJ) to loosen its yield curve policy. Within duration management, our short duration stances in the UK, Italy, Canada and Germany all had a positive impact on performance as bond yields rose broadly. Our curve flattening bias in Japan also added gains following the BoJ’s surprise decision. However, our U.S. duration positioning weighed on returns, particularly in the second half of the month when we expressed a long position, which came under pressure from the rise in yields. Allocations to German inflation‐linked bonds and Hungarian local currency government bonds also detracted. In currency markets, a long position in the Japanese yen contributed positively while short positions in the South Korean won, New Zealand dollar and Polish zloty detracted. Within sectors, the portfolio’s exposures to U.S. high yield corporate bonds added gains over the period. Our defensive hedging positions expressed in credit markets also supported performance, while put options on U.S. equities detracted from performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2022-12-31_1673837218.pdfNovember, 2022
Government bond markets rallied in November driven by expectations that slowing economies will prompt central banks to slow their aggressive monetary tightening cycles.
Within duration management, short duration stances in the U.S. UK, Italy, and Germany had a negative impact on performance as bond yields declined. A long exposure in local currency Brazilian government debt also weighed on performance as bonds came under pressure from political concerns. However, allocations to domestic government debt in South Korea, Hungary, Mexico, and South African contributed as risk sentiment improved.
In currency markets, our short positions in the New Zealand dollar, Taiwanese dollar, euro, South Korean won, and the Swedish krona detracted from performance due to a broadly weakening U.S. dollar. Partially offsetting these losses were gains from a defensive long position in the Japanese yen.
Within sectors, the portfolio’s short exposures via credit derivatives in U.S. and European high yield detracted as spreads tightened. Short exposures via credit derivatives in U.S. investment grade also detracted.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2022-11-30_1671012360.pdfOctober, 2022
The portfolio’s overall duration ended the period below three years. In terms of the U.S., we dynamically managed our duration exposure to end October broadly around neutral. Within the eurozone, we also moved to a broadly balanced position with a long stance in Germany mostly offset by a short posture in Italy. In the UK, we increased our short duration position. Broadly, we expect gilts to remain under pressure due to supply concerns from a deteriorating fiscal outlook. Among other high-quality countries, we held short duration positions in China and Canada. By contrast, long duration allocations were kept in Australia, Israel, South Korea, Sweden, and New Zealand. We held exposures to inflation-linked bonds and swaps, particularly in the eurozone and Germany, on anticipation that energy supply issues will likely keep price pressures elevated in the region. In emerging market bonds, long positions were maintained in the local currency government bond markets of Brazil, Chile, Mexico, Hungary, Romania, Serbia, South Africa, and India. With regards to currency, our long position in the U.S. dollar was dynamically managed during October as we initially increased before reducing again. Among the key moves, we closed short positions in the Brazilian real and Mexican peso. We also closed a long exposure in the Hungarian forint and initiated a new short position in the Polish zloty. Within sectors, we remain cautious on the credit outlook as slower economic growth could weigh on fundamentals. Accordingly, at the end of October we held defensive credit hedges in the portfolio with short positions expressed via synthetic credit instruments in U.S. high yield, and European high yield. However, we trimmed our defensive positions via synthetic credit instruments in U.S. investment-grade. Throughout, we continued to isolate credit selection from market beta as a potential source of alpha.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGBS_PortfolioUpdate_PORTFOLIO_UPDATE_au_en_AUD_2022-10-31_1668415540.pdfSeptember, 2022
Developed government bond markets extended a sell-off in September as central banks stepped up their monetary policy tightening plans to fight broadening inflationary pressures. Within duration management, our short duration stances in the U.S., UK, Italy, Germany, and France added gains as they benefited from the move higher in most sovereign bond yields. Other contributors included our short exposure to U.S. inflation breakevens and a long duration stance in local currency Brazilian government bonds, while allocations to German and UK inflation-linked bonds detracted. In currency markets, short positions in the Israeli shekel, New Zealand dollar, South Korean won, and Taiwanese dollar contributed positively, while long exposures in the Canadian dollar and the Hungarian forint detracted.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191694387.pdfAugust, 2022
Developed government bond markets broadly sold off during August as hawkish comments from central bank officials led to a repricing of monetary policy tightening expectations. Within duration management, our short duration stances in the U.S. and across the eurozone, including Germany, Italy, and France, added strong gains as yields in these markets rose.
Our short duration stance in the UK also boosted performance, as did an allocation to UK inflation-linked bonds. Long duration stances in South Korea and New Zealand detracted, however. In currency markets, a defensive short position held in the Israeli shekel detracted over the period as the currency was boosted by the country’s central bank delivering its largest rate hike in two decades. Short positions in the Japanese yen and euro contributed positively, however.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/190862261.pdfJune, 2022
Central banks appear to be finally waking up to the challenge of inflation, with several indicating their willingness to accelerate tightening paths. The Fed was among them—kicking off balance sheet reduction and delivering a 75-basis-point* hike—as they laser-focused in on the price stability part of their dual mandate. The ECB also signaled that rate hikes would likely start soon and that plans to develop a new anti-fragmentation tool were being accelerated in response to the sharp rise in periphery borrowing costs. This was a robust signal of support for the periphery, in our view, although given the lack of details provided, some risks still remain. Going forward, we broadly expect central banks to continue with this faster pace of tightening for at least the next few months; beyond that their resolve on beating inflation could be tested especially if growth slows materially. Against this backdrop, active duration management remains critical, in our view, and we expect to continue our dynamic approach of responding to the market environment.
Looking ahead, our key conviction is that volatility will remain elevated as markets grapple with the tightening of financial conditions, persistent inflation, and growth slowing. Regardless of which factor dominates the market narrative, we believe that risk markets, such as credit, remain vulnerable and expect the turbulence to continue in this space. As a result, we continued to hold a number of defensive positions in the portfolio, including credit hedges and equity put options.
Overall, the environment remains highly uncertain and with summer approaching there’s a possibility conditions could become even more protracted and challenging. Therefore, we believe that it’s important to be tactical and keep a liquid profile in the portfolio. This should help give us flexibility to adapt to changes in market conditions and take advantage of any pricing anomalies and dislocations that might occur.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188995328.pdfMay, 2022
The portfolio’s duration was reduced significantly to the end May at around 0.5 years. The main drivers included moving to a short-duration stance in the U.S. and materially reducing exposure in Germany. In further eurozone moves, we added to our short-duration position in Italy and opened a new short-duration exposure in France as the European Central Bank (ECB) signaled its willingness to act on inflation.
In other moves, our long-duration stance in Japan was trimmed further. We also reduced short-duration stances in the UK and Canada, added to our long duration position in Sweden, and opened a new long-duration exposure in Australia.
Throughout, long-duration stances were maintained in New Zealand, Israel, China, Thailand, Hong Kong, Malaysia, and South Korea. We retained exposures to inflation-linked bonds and swaps, primarily in Germany, the U.S., and the UK. In emerging market bonds, long positions were maintained in the local currency government bond markets of Brazil, Chile, Mexico, Hungary, Romania, Serbia, South Africa, and India.
In the currency sphere, our short U.S. dollar bias was increased on anticipation of U.S. exceptionalism fading. This was driven mostly by either closing or trimming short exposures in emerging market currencies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187900220.pdfApril, 2022
April was characterized by rising geopolitical concerns, global slowdown fears, and investors pricing in more aggressive tightening from central banks to fight inflation. The developments roiled global financial markets, resulting in significant volatility and a heavy sell-off across both bond and equity markets. During this time, the portfolio generated a positive return thanks to gains from active duration management and defensive hedging positions.
Duration management had a strong positive impact on performance thanks to gains from short positions in the U.S., Italy, the UK, Canada, and Poland as yields in these markets rose materially. Our exposures to U.S. inflation-linked bonds and swaps also had a positive impact, while long duration stances in South Korea and New Zealand detracted, alongside exposures in local currency Mexican and Brazilian government bonds. In currency markets, gains from short positions in the Israeli shekel, Taiwanese dollar, and Colombian peso were outweighed by losses from long exposures in the Australian dollar, Polish zloty, and Japanese yen
The risk environment deteriorated over the period, in our view. The conflict in Ukraine appears to have worsened, while lockdowns in China have extended to new cities and provinces. The confluence of these factors will likely exacerbate global supply chain issues, which will potentially negatively impact growth and keep inflation elevated for longer. We believe that central banks will continue to tighten in this environment given their inflation mandates but their ability to engineer soft landings is looking increasingly difficult. This backdrop of heightened uncertainty motivated us to increase risk hedges in the portfolio in late April, including moving to express long duration positions in core markets, such as the U.S. and Germany, as we see potential for them to benefit from safe-haven demand in the near-term. It’s important to note that at current yield levels, we feel that the pricing of central bank tightening is more accurately reflected in core bond markets than other asset classes, such as credit and equity
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187151522.pdfFebruary, 2022
The developments over the period were unprecedented and caused some large swings in bond prices, which the portfolio was affected by. In particular, late in the month some market participants began reassessing the extent to which major central banks might tighten given the potential negative implications for growth from the conflict. For us, we still believe that it’s too early to determine this, especially as inflation remains elevated and unlikely to recede any time soon given the rise in oil prices and potential for supply chain issues to linger.
Therefore, short-duration positions in high-quality countries were largely kept in place as we expect most central banks to continue responding to price pressures in the near term by hiking interest rates and removing accommodative policies. The European Central Bank is potentially one exception here, though, as there’s more wiggle room to delay tightening policy due to less labor market pressures in the eurozone than other major economies, such as the U.S. Furthermore, there’s also likely to be more direct implications from the conflict on the eurozone economy given its closer proximity to Ukraine.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/185154441.pdfJanuary, 2022
The portfolio’s overall duration stood close to zero at the end of January with short duration stances held in select high-quality countries where we feel inflation could potentially be more structural, such as the UK and the U.S. We also held short positions in countries, such as Germany and Italy, as the European Central Bank risks potentially falling behind the curve on responding to inflation, in our view. We moderately trimmed some of our exposures in U.S. inflation-linked bonds and swaps. Although several factors continue to be supportive, we are cognizant that if the Federal Reserve starts shrinking its balance sheet later this year, then it could potentially sell some off its holdings in Treasury inflation protected securities.
Among other high-quality countries, we added to our long positions in Israel and Japan, while our positive exposures in New Zealand, China, Thailand, Hong Kong, Malaysia, and Sweden were kept broadly stable. Within emerging markets, we remained broadly constructive with long exposures in select local currency government bond markets, including Russia, Brazil, India, Chile, Serbia, Mexico, and Romania, among others. To help mitigate some of the risk associated with “return-seeking” positions, we retained a short Polish duration position, although the size was trimmed after recent strong performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183927203.pdfDecember, 2021
The portfolio’s overall duration was below one year at the end of December with short duration stances held in select high-quality countries where we feel inflation could potentially be more structural, such as the UK, the U.S., and Australia.
In the eurozone, we moved to express an overall negative bias with short positions expressed in Germany and Italy. To reflect our view that long-term inflation will likely settle higher than markets anticipate, we added further to our exposures in U.S. inflationlinked bonds and swaps during December. These complemented our existing inflation-linked exposures in Germany, the UK, and Canada. Among other high-quality countries, long positions in New Zealand, China, Thailand, Hong Kong, Malaysia, Israel, and Sweden were retained.
Central banks were back in focus during December as several turned more aggressive toward combating inflation pressures. Most notably, the Bank of England surprised with an interest rate rise and the Federal Reserve announced plans to accelerate the pace of tapering its asset purchases, while also signaling the possibility for as many as three rate hikes in 2022 to quell inflation. The developments drove yields across most developed bond markets higher, which we benefited from thanks to our short duration stances in select highquality countries. Looking at the new year, a key theme that we are monitoring is the prospect of liquidity tightening. This is because we expect central banks to respond to inflation by continuing to remove accommodative policies and potentially hiking interest rates. At the same time, most governments are expected to carry on withdrawing pandemic fiscal support. The confluence of these factors is likely to lead to a negative global impulse that we believe will drive most developed government bond yields higher. But volatility is expected on this path toward higher rates, which is why the ability to manage duration actively will be important in 2022, in our view.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182425468.pdfSeptember, 2021
Yield curves across most developed government bond markets steepened during September, driven by inflation concerns and hawkish rhetoric from central banks. Within duration management, short duration stances in high-quality countries such as the U.S., UK, and Canada added notable gains as they benefited from yields rising.
Our short duration stance in Poland and exposures to U.S. inflation-linked bonds and swaps also boosted performance. Long positions in the local currency government bond markets of Chile and Turkey detracted, however, amid a rise in risk aversion. In currency markets, long positions in the British pound, Serbian dinar, Romanian leu, and the Czech koruna detracted as global growth concerns provided broad support for the U.S. dollar. These losses were partially offset by gains from short positions in select developed and emerging market currencies, including the Israeli shekel, Taiwanese dollar, Mexican peso, and South Korean won. Within sectors, defensive hedging positions expressed in equity and credit markets added gains over the period, as did security selection in European high yield. However, individual security selection in U.S. investment-grade and U.S. high yield corporate bonds resulted in losses.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180204189.pdfDecember, 2020
The portfolio’s overall duration level stood close to zero at the end December. This was driven mainly by short duration stances in core countries, such as the U.S. and Germany, as we remained concerned about their ability to offer diversification in the current environment. Elsewhere, an allocation to U.S. inflation-linked bonds was maintained on anticipation that price pressures could rise in the future as a result of base effects and new fiscal stimulus.
Throughout, we kept a long duration posture in Australia and a modest positive bias in the eurozone periphery through exposure to Cyprus. Among other high-quality countries, we retained long exposures throughout in Israel, Thailand, Hong Kong, China, Malaysia, and South Korea. Our long duration position in Japan was slightly trimmed over the period. Within emerging market countries, we retained long positions in the local government bond markets of Chile, Brazil, Indonesia, the Philippines, Serbia, Russia, Romania, and South Africa.
To help mitigate some of the risk associated with our “returnseeking” positions in emerging markets, we maintained short duration positions throughout in Poland and, to a lesser extent, the Czech Republic. In the currency sphere, we further increased exposure to emerging markets during December. This was done through initiating a new modest long position in the South African rand and adding to existing long positions in the Russian ruble and Brazilian real. Within sector allocation, we further increased the overall positive stance in credit markets during December.
This was done through adding a new long position in U.S. investment grade via synthetic credit instruments. In other moves, we trimmed some of our long positions in select individual corporate bonds after strong performance. Put option structures on U.S. equities—which we hold as a defensive hedge against a rapid correction in equity markets—were adjusted during the month. Within duration management, gains were made from a short duration stance in the U.S. and long duration postures in Brazil, Serbia, Thailand, and South Africa. An allocation to U.S. inflation linked bonds also had a notable positive impact on performance.
In the currency sphere, our short bias in the U.S. dollar boosted returns in December as a result of gains from long exposures in the Australian dollar and the euro. Our long positions in select emerging market currencies, such as the Russian ruble, Brazilian real, and Romanian leu further boosted performance, while a short position in the Taiwanese dollar dragged. Sector allocation had a positive impact overall as we benefited from security selection in high yield and investment-grade corporate bonds. Our short position in U.S. equities via put option structures detracted modestly from returns, however.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ADGB_Monthly_PortfolioUpdate-M_24787_12312020.pdfticker: ETL0398AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
or
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:
T. Rowe Price Dynamic Global Bond seeks to maximise total return and provide income through investment primarily in a portfolio of fixed income securities which may include, but is not limited to, transferable debt securities of government and their agencies, supranational organisations, corporations and banks as well as mortgage backed and asset backed securities. There are no restrictions on the sectors or countries in which bond issuers are located.
- An actively managed, diversified global bond portfolio with opportunistic currency and credit allocations
- Emphasises negative or low correlation to equity markets, especially during periods of heightened volatility, and downside risk
- Aims to produce modest and repeatable performance, regardless of the direction of interest rate movements
- Manager Address : Governor Phillip Tower Level 50 1 Farrer Place, Suite 50B Sydney NSW 2000, Australia
- Website : https://www.troweprice.com/financial-intermediary/au/en/home.html
- Contact Page : https://www.troweprice.com/financial-intermediary/au/en/about/contact-us.html