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AXA Global Strategic Bond Fund Markets price in US election expectations

  • 20 November 2020 (5 min read)

Key points

  • Government bond yields rise on expectation of Democratic “blue wave” in US election
  • Credit spreads tighten despite further lockdowns, supported by strong technicals
  • We added duration to bring our exposure to over 5 years

What’s happening?

Government bond volatility increased during the month as yields moved back towards their highest yield levels since Q1 2020 on the expectation of a Democratic “blue wave” in Washington, paving the way for higher fiscal stimulus.

Whilst economic data points towards an economic recovery over the last few months, the UK moved into lockdown and large parts of Europe announced increased restrictions on movement and growing concerns on the impact this will have on growth, although much less than during Q2 of this year.

That said, credit spreads tightened during the month, supported by the strong technicals and the prospect of further stimulus packages.

Portfolio positioning and performance

Defensive (50%): we added duration, rising above 5 years of exposure, primarily to hedge potential volatility around the US election. We added inflation-linked bonds, bringing our government bond exposure close to 45%. We retain a preference for US treasuries, whilst rotating into long-dated UK gilts out of long-dated German bunds.

Intermediate (14%): developed market credit spreads tightened on the month and posted a small positive return, offsetting the losses on higher government bond yields. We continue to prefer European credit, with a focus on financial bond exposure.

Aggressive (36%): strong month for emerging markets (12% exposure) and for developed market high yield (21% exposure). US high yield spreads comfortably outperformed European high yield, which benefitted our relative positioning (16% in US high yield versus 5% in European high yield).


As we head towards the end of the year, bond yields are once again testing their higher yield range and credit spreads continue to rally.

Despite a number of headwinds such as US election volatility and rising global virus cases, the strong monetary stimulus from central banks continues to support risk assets.

Over the last few months we have slightly reduced exposure to risk assets after strong runs.

No assurance can be given that the AXA Global Strategic Bond Fund will be successful. Investors can lose some or all of their capital invested. The AXA Global Strategic Bond Fund is subject to risks including counterparty risk, derivatives risk, geopolitical risk, interest rate risk, securitised assets or CDO assets risk, emerging market risk, liquidity risk, credit risk, risks linked to investments in sovereign debt, high yield bonds risk and contingent convertible bonds (“CoCos”) risk. Further explanation of the risks associated with an investment in this fund can be found in the prospectus.

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