Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Fixed Income

Global Short Duration strategy - August 2021

  • 21 September 2021
  • 5min read

Tapering talks intensify

  • Investment grade credit spreads were broadly unchanged while high yield spreads were tighter
  • Government bond yields rose as tapering talks intensified in the US and Europe
  • The risk profile was broadly stable

What’s happening? 

Despite positive corporate results and the US Senate’s approval of a $1trn infrastructure bill, credit spreads were mixed in August. Concerns about the spread of the Delta variant of COVID-19 and signs of slowing economic growth in China continued to unsettle markets, while worries earlier in the month that the US Federal Reserve (Fed) was likely to begin tapering its monthly asset purchases before the end of the year added further pressure.

However, at the Fed’s annual Jackson Hole symposium, Chairman Jerome Powell sought to reassure investors by explaining that interest rate hikes were not imminent, even if tapering was, as there was still ‘much ground to cover’ before the economy hit full employment. Meanwhile, the Bank of England maintained its accommodative stance, although it indicated that it could start raising interest rates sooner than previously expected.

US treasury, German bund and UK gilt yields rose in August as tapering talks intensified in the US and Europe.

Portfolio positioning and performance

Sovereign: While our sovereign exposure remained stable at 28%, we decreased the duration of the portfolio from 1.8 years to 1.5 years as tapering talks intensified in the US and Europe.

Investment Grade: Our exposure to investment grade markets also remained unchanged at 35%. We were still active in the secondary market, adding to banks in US dollars.

High Yield and Emerging Markets: While our exposure to high yield and emerging markets also remained constant at 36%, we sold protection on the Markit iTraxx Xover in order to unwind our position as concerns around the Delta variant and Fed tapering somewhat abated during the month.

Outlook

As we expect continued monetary and fiscal support over the medium term to ensure a full economic recovery, we believe the last quarter of 2021 will remain all about carry.

However, with valuations remaining very expensive, we plan to retain our barbell strategy by keeping a higher exposure to sovereign bonds and high yield and emerging markets, for defensiveness and carry purposes respectively, while keeping a lower exposure to investment grade markets.

We continue to expect higher yields by the end of the year as successful vaccination programmes in most developed countries should lead to a sustainable reopening of their economies.

Read the full article
Download article (264.92 KB)

Have our latest insights delivered straight to your inbox

SUBSCRIBE NOW
Subscribe to updates.

Related Articles

Equities

Clean Economy strategy - September 2021

  • 17 October 2021
  • 5min read
Fixed Income

Tapering isn’t lift-off

  • 15 October 2021
  • 3min read
Equities

Digital Economy strategy - September 2021

  • 07 October 2021
  • 5min read
Are you a financial advisor, institutional, or other professional investor?

This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.

    Not for retail distribution

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.

    The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.