Sterling Credit Short Duration strategy - The rally goes on
- 12 June 2020 (5 min read)
Key points
- Credit spreads have continued to tighten following the gradual easing of lockdown restrictions
- Short-dated gilt yields dropped below zero for the first time ever
- We have continued to selectively add risk
What’s happening?
Credit spreads have continued to tighten in May following the gradual easing of lockdown restrictions, and further stimulus from central banks and governments worldwide, including the Franco-German proposal for an EU recovery fund - each of these factors lifting hopes for a recovery in economic activity.
However, renewed tensions between the US and China simmered throughout the month, unsettling markets at times.
Gilt yields further fell in May, with yields on short-dated gilts dropping below zero for the first time ever, partly due to increased speculations that the Bank of England could push interest rates below zero.
Portfolio positioning and performance
We were active in May, participating in some new issues in sterling, as supply saw its first uptick since the relief rally began with gross issuance of £7.7bn. As such, we participated in the new issues from German conglomerate Siemens and UK bank RBS, the former being a new addition to the Fund.
Outlook
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 and fiscal support.
With the outlook remaining very uncertain and valuations having recovered a long way, we are growing cautious on adding more ‘beta’ risk at this point and would rather focus on specific pockets of value that have lagged the recovery so far.
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.
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.
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.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
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.