The Fund ended the month with a performance that was flat in absolute terms, but slightly positive in relative terms.
The main catalysts were our long positions on corporate bonds and external debt, which benefitted from the squeeze on risk premia.
The impact of our currency component was slightly negative as the US dollar underperformed.
Our long position on the Chilean peso and short position on the Chinese yuan added to the Fund’s performance over the month.
As the US economy returned to normal, we raised the Fund’s modified duration to more than 400 basis points by reducing our short position on Japanese bonds and increasing our long strategies on US bonds.
For emerging market debt in local currencies, we still prefer countries like Mexico and Brazil where real short-term interest rates remain extremely high.
We closed our long Chinese positions, taking profits.
At a currency level, the Fund remains long on the Brazilian real and Chilean peso. It is still long on the US dollar, though not to the same extent as before.
The Fund continues to be long on emerging market debt denominated in hard currencies within the EMEA region and Latin America.
Europe | 41.2 % |
Latin America | 31.4 % |
Africa | 10.1 % |
Eastern Europe | 6.1 % |
Middle East | 5.6 % |
Asia-Pacific | 2.6 % |
North America | 2.4 % |
Asia | 0.6 % |
Total % of bonds | 100.0 % |
Market environment
May brought the first signs of normalisation for the US economy and labour market, as well as a drop in retail sales.
Although inflation was slightly lower, Federal Reserve members remained cautious over the month.
In the Eurozone, on the other hand, signs of recovery kept coming with the publication of better GDP figures for the first quarter.
This desynchronisation led to a sharp drop in US yields, with the 10yr down 18 bps over the month but the Eurozone trend more upward.
Investors gained a lot more appetite for risky assets, as reflected in the narrowing of spreads on the Itraxx Xover index.
Emerging markets ended the month slightly lower in local currency, but higher in hard currency.