Fixed income

Global Strategic Bonds strategy: Fed’s hawkish tone causes yields to move higher

  • Fed announces tolerance for targeted “average” inflation levels going forward
  • Government bonds gave up some of their recent gains during August
  • Spreads continue to tighten thanks to sustained strong inflows into credit

What’s happening?

  • Government bonds gave up some of their recent gains during August as speculation increased around a more hawkish tone from central banks.
  • This was confirmed late in the month when the Fed Chairman, Jerome Powell, confirmed that the US Central Bank would target “average” inflation levels going forward, meaning tolerance for higher than historic target inflation.
  • Risk assets, high yield and emerging markets continued to perform well during the month as spreads tightened. Investment grade credit delivered negative total returns due to higher government bond yields.

Portfolio positioning and performance

  • Defensive (40%): we lowered duration during the month as government bond volatility picked up. We still hold a US bias, but at the shorter rather than longer end. Overall exposure remains elevated, although lower than in Q1.
  • Intermediate (25%): we increased European investment grade credit with a growing exposure to Financials, as certain single name bonds present attractive spread in the BBB-rated space.
  • Aggressive (36%): allocation to lower-risk bonds remained stable during the month as we continue to hold a preference to US high yield companies. This is enhanced with an 11% exposure to hard currency emerging markets in both corporates and sovereign bonds.


  • August saw a pick-up in bond volatility as investors started to question whether yields will remain at the lower range following a very long period of strength. We continue to believe that there are opportunities in government bonds although short term we have reduced duration risk as bonds adjust to new yield levels.
  • For the moment, credit spreads have remained resilient, with strong inflows into the asset class in line with such large monetary policy stimulus in response to the weak economy.
  • We remain vigilant to volatility further down the credit curve but for the foreseeable future the preference is for higher yielding, lower-rated bonds to generate returns.

No assurance can be given that the Global Strategic Bonds strategy will be successful. Investors can lose some or all of their capital invested. The Global Strategic Bonds strategy is subject to risks including credit risk, operational risk and counterparty risk. The strategy is also subject to derivatives and leverage, emerging markets, global investment grade and high yield securities, securitised assets and collateralised debt risks.

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.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.