![](/sites/uk/files/styles/standard_banner_xs/public/header/axa-im-insight-article-building-g531237994_4.jpg?h=299604c9&itok=ayV9BaAp)
Sterling Credit Short Duration strategy - April 2024
- 23 April 2024 (3 min read)
What’s happening?
Sterling investment grade credit spreads tightened further, supported by dovish central banks, resilient economic data, and continued strong demand. A surprise interest rate cut from Switzerland’s central bank confirmed that other central banks would not necessarily wait for the US Federal Reserve (Fed) to start cutting first.
The Fed left interest rates unchanged at a range of 5.25-5.5% and held onto its outlook for three cuts this year despite higher-than-expected inflation. As expected, the European Central Bank (ECB) also kept all its policy rates unchanged, with the depo rate remaining at 4% and the first cut still expected in June. Similarly, the Bank of England (BoE) left interest rates unchanged at 5.25%, with no members of the rate setting committee voting for a rate rise for the first time since 2021. Meanwhile, Japan made the historic decision to end its era of negative interest rates with its first rate rise in 17 years.
Sovereign yields fell on the back of dovish central banks. UK gilts outperformed US treasuries and German bunds as UK inflation surprised on the downside, falling to 3.4% in in the year to February, its lowest level for two and half years. Meanwhile, US inflation unexpectedly rose to 3.2% from 3.1% in January while eurozone inflation also surprised on the upside at 2.6%.
Portfolio positioning and performance
Sterling investment grade primary issuance rose in March to £6.2bn. As a result, we participated in four sterling new issues, with a bias towards the financial sector. We were also active in the secondary market. As a result, our exposure to financials increased by 2% to 45% while our exposure to BBB-rated bonds remained stable at 45%.
Outlook
A divergence in monetary policy between Europe and the US could appear this year as the latter is faced with stickier inflation on the back of much stronger growth, potentially preventing the Fed from cutting rates not nearly as much as the ECB or BoE.
We have reduced the overall level of credit risk as valuations look fair to expensive across most sectors, particularly in a scenario where the Fed would not cut rates at all in 2024.
Still, we believe the yields available on sterling short-dated bonds remain attractive due to an inverted gilt yield curve and flat credit curve
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.
Related articles
View all articles
![](/sites/uk/files/styles/364x205/public/header/axa-im-insight-article-education-g1181075185.jpg?itok=QTcfiGQZ)
Global Short Duration strategy Summer rally continues
- by Nicolas Trindade
- 17 September 2020 (5 min read)
Disclaimer
Not for Retail distribution: This marketing communication 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.
This marketing communication 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.
Due to its simplification, this marketing communication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee 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.
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. References to league tables and awards are not an indicator of future performance or places in league tables or awards and should not be construed as an endorsement of any AXA IM company or their products or services. Please refer to the websites of the sponsors/issuers for information regarding the criteria on which the awards/ratings are based. 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. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.
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: 22 Bishopsgate London EC2N 4BQ.
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
Risk Warning
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.