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.

Treasury yields fall again despite conflicting signals

  • 09 August 2021 (7 min read)

Key points

  • Bonds continue to rally despite a rising oil price and higher inflation data
  • Technical demand for duration is causing yields to fall, exacerbated by those caught short
  • The “summer of carry” is upon us, with spreads unmoved for now

What’s happening?

Government bond yields moved lower once again, surprising many investors and presumably causing some short duration positioning to be closed. US 10-year treasury yields ended the month at 1.2%, back to February levels, and a long way from the peak in March of 1.7% in the heart of the “reflation trade”.

During July we saw conflicting signals with a rising oil price, higher inflation – albeit still with an expectation that it will be transitory – as well as economic re-opening factors, but yet lower bond yields. Part of the reason may lie in increasing political and market conflicts between the US and China.

Credit has generally performed well although, with spreads at such extremes, the ability to tighten is somewhat limited. There are growing signs of equity positive (credit negative) corporate actions, with leveraged buy-outs (LBOs) and M&A activity returning to some markets.

Asian fixed income once again witnessed high levels of volatility, with a combination of weaker fundamentals and increasing political interference in markets knocking investor confidence.

Portfolio positioning and performance

Defensive (38%): we increased duration exposure again and ended July with 5 years of duration, concentrated in US treasuries. We reduced our exposure to the long-dated flattening curve strategy, and prefer instead to take exposure to the 7-10 year part of the US curve. Surplus cash was invested in short-dated European inflation-linked bonds.

Intermediate (28%): activity in higher quality credit was muted during the month. Spreads moved broadly sideways and we prefer BBB, shorter-dated debt with a bias towards financials and European debt.

Aggressive (35%): allocations were constant, although in emerging markets we reduced Asian fixed income exposure and reinvested in renewable energy and non-Asian property credits. In high yield, we retain an overweight to shorter dated, less volatile credits, which offer carry without capital appreciation nor depreciation. Finally, we once again entered into a CDS protection contract which will partially protect against any widening of spreads.


The fund has benefitted recently from an increase in duration exposure and a bond market which is responding strongly to demand for the asset class. This is possibly being led by price insensitive investors (e.g. liability matching).  

This move has caught many investors out, as expectations for a fairly consensual 2% US 10-year treasury yield have not materialised, further exacerbating the move. We have moved away from peak pandemic-related crises, although variants and mixed vaccine uptake still carry some risk to the recovery.

Over coming months we may see how risk assets respond to a less than perfect recovery and we expect some pick-up in volatility, which is already somewhat priced into government bond yields.

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.

Read the full article
Download article (248.02 KB)

Have our latest insights delivered straight to your inbox

Subscribe to updates.

Related Articles

Fixed Income

Why flexible investing may help overcome obstacles

  • by AXA Investment Managers
  • 30 August 2023 (3 min read)
Fixed Income

Themes in focus for Global Strategic Bonds

  • by Nick Hayes
  • 13 December 2022 (5 min read)
Fixed Income

New opportunities for bonds as the rules of the game evolve

  • by Nick Hayes
  • 04 August 2022 (5 min read)

    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.

    Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. 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. Exchange-rate fluctuations may also affect the value of their investment.

    This document is for informational purposes only and 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. The strategies discussed in this document may not be available in your jurisdiction.

    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.

    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. 

    Are you an IFA or other Professional Investor ?

    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.