Fixed income

Sterling Credit Short Duration strategy Summer rally continues

  • Credit spreads further tightened thanks to a sustained level of monetary and fiscal support
  • Europe is starting to see a second wave of coronavirus
  • We kept the risk profile stable

What’s happening?

Despite persistent worries about spikes in infections across the world, credit spreads continued to tighten in August thanks to a sustained level of monetary and fiscal support from central banks and governments worldwide, China and the US re-committing to their ‘Phase One’ trade agreement, and encouraging news about a coronavirus treatment.

In a significant change in monetary policy, the US Federal Reserve (Fed) announced plans to shift to ‘average inflation targeting’ in an attempt to increase inflation expectations. This also implied that interest rates would likely remain at a low level for longer.

Despite the Bank of England keeping interest rates unchanged, UK gilt yields rose in August, mirroring a trend across developed markets, due to the continued risk-on environment and the Fed’s new inflation policy.

Portfolio positioning and performance

We were active in the secondary market, buying bonds from the financial services arm of UK retailer Tesco and German bank Deutsche Bank. We did not buy any new sterling issues in August as the sterling primary market remained shut with only £0.5bn of issuance. However, we were active in the euro primary market, buying US life insurer Athene, a new addition to the Fund.


Despite all advanced economies forecast to be in recession this year, we have now experienced the shortest bear market ever in credit markets due to the unprecedented monetary, fiscal and regulatory support.

With the outlook remaining very uncertain and valuations back to early March levels, we decided to pause the re-risking of the Fund for now.

No assurance can be given that the Sterling Credit Short Duration strategy will be successful. Investors can lose some or all of their capital invested. The Sterling Credit Short Duration strategy is subject to risks including credit risk, interest rate risk and counterparty risk. The strategy is also subject to derivatives and liquidity risks.

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