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Global Short Duration strategy - September 2022

  • 03 November 2022 (5 min read)

Market sell-off deepens due to central banks’ continued hawkishness

  • Credit spreads widened as global central banks remained committed to aggressive monetary policy tightening
  • Government bond yields were again sharply higher, with UK gilts underperforming substantially following the UK’s disastrous mini-Budget
  • We decreased the risk profile

What’s happening?

  • Credit spreads widened as recession fears weighed on markets due to the ongoing interest rates rises from the US Federal Reserve (Fed) and its continued hawkish rhetoric. The announcement of a swathe of unfunded tax cuts in the UK’s mini-Budget, fueling inflation fears, accelerated the sell-off in UK gilt and credit markets.
  • The Fed increased interest rates by a third consecutive 75 basis points (bps), taking its federal funds rate to 3%-3.25%, the highest since 2008. Meanwhile the European Central Bank raised interest rates by an unprecedented 75bps to 0.75%. Finally, the Bank of England (BoE) increased the base rate by 50bps to 2.25%, its seventh consecutive increase. In a bid to “restore orderly market conditions” in the UK gilt market, the BoE was forced to intervene, suspending the planned start of its gilt selling and instead temporarily buying up to £65bn of long-dated bonds.
  • US treasury, German bund and UK gilt yields rose again sharply on the back of hawkish rhetoric from central banks and as inflation hit a new record high in the eurozone at 10% in September while slightly easing in the UK and the US to 9.9% and 8.3%, respectively, in August. UK gilts underperformed sharply following the UK’s mini-Budget, with the yield on the five-year gilt up by a staggering 160bps in September.
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Global Short Duration Bond strategy

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