Mirabaud - Global Strategic Bond Fund N cap. USD

Performance update

May saw positive total returns in credit but negative returns in US Treasuries as credit spreads continued their recovery on positive trade war progress. Rates markets became increasingly concerned with government fiscal deficits. There was progress on tariffs, with the US first announcing a deal with the UK and then a 90-day reduction on tariffs for China. These developments, combined with solid economic data, reduced expectations for an imminent global recession. Global high yield spreads rallied to retrace 73% of the moves since the end of February. In contrast, the US 30yr Treasury moved +26bps wider, trading above 5%. The curve steepened after Moody's downgraded its rating on the US to AA1 and Trump's tax bill was passed by the Senate, causing markets to focus on the US fiscal deficit and adding a risk premium to US Treasuries.

In terms of fund performance, the largest positive contributions came from high yield, although these were partially reduced by the remainder of the credit derivatives we had added to protect the portfolio from volatility and further downside risk. Credit exposures in subordinated financials and investment grade also generated positive contributions. Despite the increase in duration, there was overall no negative contribution from developed sovereigns and interest rate derivatives.

Portfolio activity

During May, we further reduced our credit hedges to reflect trade war progress and the reduced chance of a global slowdown – although we remain cautious, as the damage from uncertainty and tariffs is likely to feed into the wider economy eventually. We rotated out of cyclical names that had fully retraced the tariff scare, such as Ashton Woods and Univar, and added those still trading at recession levels, such as Chemours. We reduced our high yield energy holdings where bond prices did not reflect the move lower in the oil price, and increased our holdings in subordinated financials. We also started to add short-dated high yield bonds, such as IGT, where we felt yields were attractive enough for the significantly lower volatility in the wider market. As US Treasury rates increased, we brought duration up to 5.2 years from 4.8 years.