September, 2023
The Fund was down 7.26% during the September quarter. Within the Fund, duration and yield-curve positioning was the most significant detractor on a net basis mainly as a result of overall long U.S. duration positioning over the quarter. EM debt was also a significant detractor mainly due to Mexican local currency sovereign exposures, but exposures in Brazil and Russia also detracted from performance. Overall foreign exchange (FX) positioning detracted from performance on a net basis. The negative contribution from EM FX was driven mainly by Russian ruble exposure, but long Indian rupee, South Korean won, Indonesian rupiah, Mexican peso and Brazilian real exposures also detracted. Within DM FX, exposures to the Australian dollar and Japanese yen were detractors, but the positive impact from short euro and British pound exposures offset some of the negative performance. Investment-grade credit contributed positively over the quarter, driven mainly by exposures to energy, financials, consumer non-cyclicals and consumer cyclicals, as did high-yield credit, which was driven mainly by energy and communications exposures. Mortgage and asset-backed securities (MBS/ABS) were also a positive contributor over the quarter, driven mainly by exposure to collateralized loan obligations .
From a positioning standpoint, during the quarter headline duration decreased by approximately 1.5 years. In the U.S., we sold more duration in the 5- to 10-year part of the UST curve to add to 2-year UST futures (with the view that the large central banks are close to finishing their rate-hiking cycles) as well as to longer maturities, which provide portfolio balance in times of market distress. In global duration, we rotated about 0.5 year out of the very front end of the U.K. Treasury curve with the view that there was more limited upside left in the position. Similarly, we rotated out of the very front end of the German rates curve and added about 2.25 years to the longer end, which now shows more upside potential, and with the view that the ECB is closer to finishing its rate-hiking cycle than is the Fed, and the EU and U.K. have a higher probability of recession than the U.S. In credit, we reduced investment-grade exposure mainly via industrial names, which have not all followed commodities lower, while adding beta via high-yield credit default swap index (CDX) exposure in the case that risk asset prices reverse and move higher.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au-5.pdfJune, 2023
The Fund was down 0.12% during the June quarter. Within the Fund, duration and yield-curve positioning was the most significant detractor on a net basis as a result of overall long U.S. duration positioning over the quarter. Emerging markets (EM) debt was the most significant contributor to performance as most Russian local currency government bonds began trading again and were marked up in price, but local currency sovereign exposures in Brazil, Mexico, Indonesia, India and Poland were also beneficial. High-yield exposures contributed positively over the quarter, driven mainly by energy and consumer cyclicals, as did investmentgrade credit, which was driven mainly by exposures to financials, energy and consumer non cyclicals. Overall foreign exchange (FX) positioning detracted from performance on a net basis. The negative contribution from developed market (DM) FX was driven mainly by Japanese yen exposure, while the positive contribution from EM FX was driven mainly by Mexican peso exposure. Mortgage- and asset backed securities (MBS/ABS) were a positive contributor over the quarter, driven mainly by exposures to collateralized mortgage obligations (CLOs).
From a positioning standpoint, the Funds headline duration increased by a little more than a year as inflation pressures eased, quarterly economic data were solid and the labour market remained resilient. As short rates adjusted higher, some duration was moved from longer maturities into front-end steepeners. Although this part of the yield curve is now inverted due to expected further tightening, even with additional rate hikes we believe the curve will steepen as both growth and inflation continue to decline. The position also enjoys an element of “risk-off” protection as unforeseen shocks to the market would also likely cause a steepening. Long-dated duration is positioned with a flattening bias. Long Japanese yen exposure increased as the currency traded weaker versus the U.S. dollar based on the view that pressure is building for Bank of Japan Governor Ueda to loosen yield-curve control bands. The long Australian dollar position increased based on our positive outlook for China and was helped by a surprise hike by the Reserve Bank of Australia. Cuts were made to long euro exposure as the eurozone continues to feel pressure from further ECB hawkishness. In EM FX, profits were taken on long Mexican peso and rotated into long Brazilian real, as both currencies offer quite positive carry. Investment-grade credit exposure decreased as spreads tightened on stronger economic data.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au-4.pdfSeptember, 2022
The Fund was down 7.22% in September and down 2.05% during the September quarter. The Fund’s duration and yield-curve positioning was the most significant detractor from performance, mainly as a result of overall long U.S. duration. Emerging markets debt contributed the most significantly as pricing on Russian government bonds continued to increase. While overall foreign exchange positioning was a net detractor from performance. The negative contribution from developed markets foreign exchange was driven by Australian dollar, Japanese yen and British pound exposures. Emerging market foreign exchange had a minimal negative impact as long Polish zloty exposure detracted and offset the positive impact from short Chinese yuan exposures. While highyield contributed mainly as a result of energy exposures. Investment-grade credit also added to returns mainly as a result of energy, financial and Credit Default Swap Index exposures. Mortgage- and asset-backed securities were a modest detractor, driven by collateralized loan obligations.
From a positioning standpoint, duration over the third quarter reflected the main theme that global inflation and growth will continue to moderate and that U.S. growth will remain positive into year-end. Specifically, duration was positioned as a butterfly along the curve, being long in both front- and long-end rates, while short in medium term maturities. As the front-loading of aggressive rate hikes by the Fed increased the likelihood of negative growth in 2023, duration was moved from short-dated to longer-dated maturities to reflect the diminished expectation for growth next year. In Japanese rates, the 10-year Japanese government bond short position increased as we believe inflation and a weakening Japanese yen will put pressure on the upper limit of the yield curve control policy. In foreign exchange, short positions were maintained in the Chinese and euro currencies, with longs in the Australian dollar, Mexican peso, Brazilian real and Canadian dollar.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au-3.pdfJune, 2022
The Fund was down 3.16% in June and down 6.48% during the June quarter. The Fund’s duration and yield-curve positioning was the most significant detractor on a net basis mainly as a result of overall long U.S. duration exposure. Exposure to investment-grade and high yield credit was also a negative contributor to performance, mainly due to energy and financials. Overall foreign exchange positioning detracted on a net basis while, developed markets foreign exchange was negative for returns, with long Australian dollar and Japanese yen exposures detracting the most. Emerging markets foreign exchange added to performance as the positive effect of long Russian ruble and short Chinese offshore yuan exposures offset the negative impact of long Brazilian real, Polish zloty and Indian rupee exposures. Mortgage and asset-backed securities were negative for returns, with collateralized loan obligations detracting the most. Emerging market debt was a net detractor mainly as result of Israeli and Brazilian debt exposures; exposure to Russia partially offset the negative impact.
Positioning over the quarter reflected the main theme that inflation and growth would moderate into year end and that the U.S. economy would avoid a recession. The Fund’s duration was positioned as a butterfly along the curve, being long in both front- and long-end rates, while short in medium-term maturities. With growth and inflation expectations both moderating late in the quarter, we were positioned for a flatter curve belly to bonds. Risk asset exposure in investment-grade and high-yield credit generally increased as spread widening reflected generous implied default rates vs. our growth outlook. A small amount of emerging market exposure was added by receiving in mid-maturity Mexican swaps and a small long position in Poland. Russian swaps were further reduced, some at levels better than the initiation price, and Russian sovereign exposure passively increased as bond pricing increased over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au-2.pdfMarch, 2022
The Fund was down 10.38% in March and down 18.80% for the March quarter. Within the Fund duration and yield-curve positioning was the most signifi-cant detractor on a net basis mainly due to long US duration exposure. Emerging markets (EM) debt was also a significant detractor mainly as a result of exposure to Russian rates. Overall foreign exchange (FX) positioning was a positive contributor to returns. Within EM FX, Russian ruble and Brazilian real exposures contributed the most. Within developed market (DM) FX, the Japanese yen detracted the most but its negative effect was partially offset by long Australian dollar exposure. High yield exposures, mainly energy, contributed positively to performance. Investment-grade credit, mainly CDX, energy and financial exposures, also added modestly to returns.
From a Fund positioning perspective headline duration increased by a little more than three years in March with the increase split between the 2-year key rate duration (KRD), after the mid-month repricing toward a more aggressive Fed hiking cycle, and at the long end in the 10- to 30-year KRDs to provide ballast as the war in Europe continues. Additionally, the paying on swaps position was decreased by approximately 1.5 years as 10- and 30-year invoice spreads widened mid-month. There was no change to inflation trades. We trimmed the German-US short from -4.25 years at the end of February to almost flat by monthend as 10-year rates rose significantly in Europe. In FX, the long Mexican peso and Brazilian real positions were materially reduced. In East Asian currencies, long positions in the Korean won and Malaysian ringgit were reduced, as was a short Chinese yuan position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au-1.pdfDecember, 2021
The Fund was up 2.08% in December and flat for the December quarter. Within the Fund duration and yield-curve positioning was the most significant contributor on a net basis mainly due to short German duration exposure. Emerging market (EM) debt was a positive contributor mainly as a result of exposure to Brazilian rates. High-yield, mainly energy exposures, and investment grade credit, mainly financial and energy exposures, also contributed significantly to performance. Within EM FX, long Mexican peso and Brazilian real exposures helped performance the most, and offset the negative effect of Russian ruble exposure. Within developed market (DM) FX, long Australian and Canadian dollar exposures helped the most and offset the negative effect of Japanese yen exposure. Within the Fund headline duration increased by almost 5.5 years taking the portfolio’s effective duration close to seven years by month-end. Although duration was added across the curve, the majority of it was added in the three- to five-year area. The swap spread position (payer) was reduced as swap spreads tightened early in the month. The US-German 10-year position was reduced by 1.6 years and the Italian-German 10-year position was reduced by 0.25 year. Positions in credit and EM debt were held constant. In EM currencies the long Indian rupee position increased by 1.2% as inflation continued to be benign (1.9%), while the currency offers high carry (6.0%) and relatively low volatility (5.1%). Additionally, Mexican peso exposures increased by 1.5% as the currency rallied through the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-wa-macro-opportunities-bond-au.pdfJune, 2021
The Fund was up 2.94% in June. Duration and yield-curve positioning was the most significant contributor on a net basis, mainly as a result of overall long U.S. duration. Emerging market (EM) FX was an overall positive contributor, mainly due to long Brazilian real, Russian ruble and Mexican peso exposures. EM rates also contributed to performance, helped mostly by exposures to Mexico, Indonesia and Russia. Investment-grade credit, mainly financial and energy exposures, was positive for returns. High-yield allocations, mainly to energy names, also added modestly over the quarter.
While duration was actively managed over the quarter, there were no major changes in the recovery theme or positioning. The effective duration averaged approximately six years with a flattening bias, reflecting the view that rates were too optimistically priced relative to the pace of the recovery and that current price inflation would prove transitory. Going forward, the expectation is that as the economy recovers slowly and the Fed begins tapering and ultimately raising rates, the yield curve will flatten. Additionally, the flattening exposure adds a defensive element to the portfolio in the event unforeseen problems arise, especially those unrelated to the pandemic. With respect to risk assets, the main themes remain in investment-grade credit and EM. Over the quarter, there was some rotation out of investment-grade into high-yield energy and industrial exposures in the spirit of reopening trades. EM also remains a critical theme as Western Asset believes it represents the highest beta trade to a meaningful global economic recovery. Relative to global equities and credit, prices in the EM complex have not recovered to pre-pandemic levels and represent a tremendous value opportunity.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-lm-wa-macro-opportunities-bond-2.pdfApril, 2021
The Fund was up 3.87% in April. Duration and yield-curve positioning was the most significant contributor, mainly as a result of overall long U.S. and short German duration exposures. FX positioning was an overall contributor, mainly due to long Brazilian real as well as Canadian dollar and Chinese yuan exposures. Emerging market (EM) debt also contributed to performance, mainly as a result of long rate exposures in Indonesia and Brazil. High-yield and investment-grade credit exposures, mainly energy and financials, were positive for returns. Peripheral Europe was a slight contributor mainly as a result of short 10- year Italian Treasury exposures.
In terms of positioning, headline duration decreased by almost two years as yields rallied and as we continued to readjust longer duration to shorter-dated key rates. Both high-yield and investment-grade positions were slightly reduced as spreads tightened. In high-yield, about a half percent of energy was added while reducing subordinated financials and industrials for an overall net reduction. In investment-grade, mainly financials and industrials were cut as spreads tightened over the month. In EM, the local Indian rupee rates position was reduced on the back of a worsening pandemic in the subcontinent. In developed market currencies, the short euro position became flat through long calls going in-the-money.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-commentary-lm-wa-macro-opportunities-bond-1.pdfDecember, 2020
The Fund was up 1.50% in December and the Fund rose 6.14% for December quarter. Emerging markets (EM) debt was the most significant contributor, mainly as a result of long rate exposures in Mexico, Indonesia, Russia and Brazil. Investment-grade credit was a significant contributor mainly as a result of financial and energy holdings as those spreads tightened. EM currency exposures were positive as the Russian ruble, Mexican peso and Brazilian real all strengthened versus the US dollar. High-yield was a modest contributor as a result of energy positions. Overall duration positioning detracted from perfor-mance mainly due to long US duration exposure. No major theme or position changes took place during the fourth quarter. As it has been since early 2Q20, the portfolio was positioned risk-on, to take advantage of progress toward economic normalization underpinned by extraordinary monetary and fiscal policy. Investment-grade credit, being directly supported by the Federal Reserve (Fed), was one major theme; EM countries with positive real yields was another major theme in the portfolio. With Fed Chair Jerome Powell’s commitment to keep rates near zero for the foreseeable future, and with meaningful progress toward global vaccinations, we believe EM real yields will become increasingly attractive. Toward the end of the quarter, headline duration increased by a little more than a year, with the increase concentrated in the 10- and 20-year part of the curve. A 30-year breakeven trade was closed given the more con-servative outlook for inflation, and the swap spread widener was decreased as 10-year swaps widened into positive territory. The US-German short was increased by about a quarter of a year as the spread between US and German 10-year bonds continue to widen.
What is the outlook?
The combination of the global vaccination process beginning and reasonable economic momentum aided by fiscal help should support fixed-income and risk markets. However, challenges remain with record global infection rates as well as in vaccine production, acceptance and distribution; as a result, we main-tain our base case outlook for a longer, U-shaped economic recovery. Central bank purchases will likely support continued spread compression and the liquidity of investment grade markets moving forward. Credit fundamentals remain challenged, but we expect a number of sectors to demonstrate resilience, including banking, while others continue to face downgrade pressure. We acknowledge markets remain most sensitive to statistics around COVID-19. Once we begin to see declines in the viral spread, we believe that ultimately the power of the very accommodative policies will combine with an eventual recovery in demand to propel the global economy back toward trend-line growth.
Past performance is not a reliable indicator of future performance.
ticker: SSB0070AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.leggmason.com/en-au/products/lm-wa-macro-opportunities-bond.html#shareclass=A&t=0,1&st=1
https://www.franklintempleton.com.au/our-products/funds-prices-performance/managed-funds/products/91494/AA1/western-asset-macro-opportunities-bond-fund/SSB0070AU#documents
Literature Tab -> Fund Commentary
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fund_features:
Legg Mason Western Asset Macro Opps Bd A seeks to maximise total return through capital appreciation and income by investing in a combination of investment grade, high yielding debt securities and financial derivative instruments. The Fund accesses its investment strategy and objective through investing in the Underlying Fund. With respect to assessing relative attractiveness of the opportunity set, Western Asset believes in a top-down view of the financial environment based on a long-term, fundamental, value-oriented approach.The strategy’s risk asset positioning focuses on global relative-value opportunities within the credit universe and foreign exchange. Active management of duration, yield curve and volatility make the strategy dynamic as these can be used both as sources of return or to hedge risk asset positions. The strategy maintains a focus on liquidity and preservation of capital.
asset_class: Alternatives
asset_category: Macro
peer_benchmark: Alternatives - Macro Index
broad_market_index: Credit Suisse AllHedge Global Macro Index
manager_contact_details: Array
structure: Managed Fund