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Global Short Duration strategy - August 2022

  • 25 October 2022 (5 min read)

Market sells off due to renewed hawkishness from central banks

  • Credit spreads were mixed as global central banks remained committed to aggressive monetary policy tightening
  • Government bond yields were sharply higher, with UK gilts underperforming
  • The risk profile was broadly unchanged

What’s happening?

  • After a period of tightening early in the month, credit spreads widened in the last two weeks of August as global central banks remained committed to aggressive monetary policy tightening, stoking fears of a global recession.
  • At the Jackson Hole symposium, US Federal Reserve chair Jerome Powell made clear that it would retain its hawkish stance and continue raising rates ‘for some time’, despite admitting it would cause ‘some pain’. Meanwhile the European Central Bank warned that Europe needed another significant interest rate increase in September to take rates back to a ‘neutral’ level. Finally, the Bank of England increased the base rate by 0.5% to 1.75%, its largest single increase since 1995 and its sixth consecutive increase one.
  • US treasury, German bund and UK gilt yields rose sharply on the back of hawkish rhetoric from central banks and as inflation hit a new record high in the eurozone at 9.1% in August and a 40-year high in the UK at 10.1% in July. UK gilts underperformed due to the combination of domestic fiscal uncertainty and the prospect of even higher inflation.


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