Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Sterling Credit Short Duration strategy Strong rebound following unprecedented central bank stimulus


Key points:

  • Credit spreads tightened on the back of unprecedented global central banks stimulus and…
  • … despite historically weak economic data releases
  • We keep on selectively adding risk

What’s happening?

Despite historically weak economic data releases, credit spreads significantly tightened in April driven by the unprecedented accommodative monetary support from global central banks, a slowdown in new coronavirus cases and the lifting of lockdown measures in some countries towards month-end.

The US Federal Reserve continued its policy support, as it implemented a new loan programme worth up to $2.3 trillion, while stating that it would do whatever was necessary to back the economy. The European Central Bank announced an extension to its record-low interest rate loan facilities to banks, while maintaining its €750 billion bond-buying programme.

Despite this risk-on environment and the UK significantly increasing its borrowing in the next three months to pay for the sizeable measures put in place to support the economy, UK gilt yields still fell as the Bank of England stepped up its gilt purchases.

Portfolio positioning and performance

Activity was somewhat subdued in April after a very busy March, as we didn’t participate in any new issues. We added a new position in the secondary market, buying UK reinsurer Society of Lloyds, while starting to gradually reduce our exposure to European peripheral names that had recently outperformed.

Outlook

While the outlook remains uncertain despite unprecedented fiscal and monetary support globally, the widening of spreads since late February has made us more positive on risk assets. Should the coronavirus outbreak stabilise and/or spreads widened further, we will look to keep on gradually adding to cyclical and subordinated financial names by reducing our allocation to defensive sectors.

For the first time since 2008, the short-dated sterling corporate bond market yields almost as much as the all-maturity one and, as such, we believe this represents a very attractive entry point for investing in short-dated bonds.

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.