Fixed income

Global Strategic Bonds strategy - Markets price in good news on the recovery

Key points:

  • Central bank support appears to have suppressed volatility in government bond yields
  • Risk assets remain relatively volatile, but continue to move higher
  • Downside risks are clear, with macro and political uncertainties ahead

What’s happening?

  • Another strong month for risk assets as lockdown restrictions are eased and economic data starts to improve from dire levels.
  • Despite better returns from risk assets, government bond yields remain robust, thanks to technical demand.
  • The virus data in some US states started to deteriorate towards month-end but, for now, markets are broadly ignoring the concerns.
  • US 10-year yields are stuck in a very low trading range as central banks have reduced volatility in high quality bonds.

Source: AXA IM as at 30/06/2020. The data is based on a representative account that follows the Global Strategic Bonds strategy and is not intended to represent actual past or simulated past performance of the strategy. Past performance is not a reliable indicator of future results. Performance calculations are net of fees, based on the reinvestment of dividends.

Portfolio positioning and performance

  • Defensive (43%): re-implemented higher duration exposure with an increase of 2 years. New inflows were put into higher quality government bonds. We continue to prefer US treasuries over their European equivalents. Our exposure to long-dated France performed very well.
  • Intermediate (24%): we increased exposure to European credit during the month. New issues continue to provide attractive opportunities, with a specific focus on financials.
  • Aggressive (33%): whilst continuing to build positions in high yield and emerging markets, we have been active on our CDS protection by taking profit from strong gains over last few months, as markets have priced a lot of good news on the economic recovery, whilst also being mindful of further volatility ahead.

Outlook

  • Markets continue to focus on the economic recovery and central bank stimulus, rather than any medium-term economic pain inflicted by the global lockdown. Economic data has generally surprised to the upside and, in tandem with the loosening of lockdown restrictions, there is more positive sentiment in the short term.
  • Whilst government bond volatility appears to have supressed, risk assets show some signs of volatility yet have continued to move higher over the month. As well as central bank stimulus, it appears that high levels of cash continue to move in from the side-lines to support asset prices.
  • This is supportive of higher valuations but we maintain vigilance and moderate our bullishness accordingly.

 

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.

[1] Yield figures quoted will vary in the future and are not guaranteed.

[2] Average credit spread relative to government bonds.

[3] Representative account has been selected based on objective, non-performance based criteria, including, but not limited to the size and the overall duration of the management of the account, the type of investment strategies and the asset selection procedures in place. Therefore, the results portrayed relate only to such accounts and are not indicative of the future performance of such accounts or other accounts, strategies and/or services described herein. In addition, these results may be similar to the applicable GIPS composite results, but they are not identical and are not being presented as such. Account performance will vary based upon the inception date of the account, restrictions on the account, along with other factors, and may not equal the performance of the representative accounts presented herein. The performance results for representative accounts are net of all fees and reflect the reinvestment of dividends or other earnings.

 

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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.

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