NFA Global UCITS Monthly - April 2018

  • The Fund’s QDUSD class fell 1.8%
  • US Treasury market sold off pressuring USD credit markets
  • US sanctions targeting Russian entities/individuals added to volatility
  • US dollar index (DXY) gained 2.1%

In general April was another difficult month for fixed-income markets: The yield on the 10 yr UST did push through 3% on renewed inflation concerns but recovered to 2.95% at month-end, but still higher than March’s close of 2.74%. The UST 2-10 year spread reached another new low since 2007, although it closed the month at 46 bps, close to the level it started the month at. 

Geopolitics remained a driver for markets in April: US-China trade relations took a more conciliatory tone but heightened tensions between Russia and the US resulted in the US announcing a step up in sanctions, triggering a knee-jerk sell-off across Russian assets.  However, there was some recovery into month end as the US eased the deadline to comply with the sanctions on Rusal. Ongoing US tensions with Iran supported the oil price: Brent ended the month at USD75. 

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NFA Global UCITS Monthly - March 2018

  • The Fund’s QDUSD class returned 0.09%
  • Tariffs concerns cause some market jitters; long-end UST curve a safe haven
  • As expected Fed raises rates by 25 basis points and UST curve flattens

In March the White House’s more aggressive trade agenda and the risk of a more hard-line foreign policy, as a number of Whitehouse staff were replaced, added to uncertainty and created some jitters across asset markets. Notably, the appointment of Mike Pompeo as Secretary of State and John Bolton as the National Security Adviser was unsettling in terms of policy direction. Brent crude traded higher over the month closing above USD70pb helped by concerns sanction tensions with Iran could be resurrected. President Trump also enacted tariffs on the steel and aluminium sector and then followed up with plans for tariffs targeting another USD50bn worth of Chinese exports.

Later in the month, and as expected, the Fed raised the target range for the Federal Funds rate by 25 basis points to 1.5-1.75%. The updated Fed ‘dot plot’ median projection continued to look for 3 hikes this year, although it forecast a more hawkish outlook for 2019-2020.  Jerome Powell noted ‘there’s no sense in the data that we’re on the cusp of an acceleration in inflation’ and importantly inflation and wage data was benign. The yield on 10 year UST fell 12 basis points to yield 2.74% at month end and the yield curve flattened: Fed tightening and a significant amount of UST issuance targeting the shorter-end of the curve pressured yields there and the 2y10y spread reached another low since 2007 at just under 47 basis points. Over the month the US dollar remained on the back-foot with the DXY index falling 0.71%.  

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NFA Global UCITS Monthly - February 2018

•  The Fund’s QDUSD class fell 1.97% in February
•  Volatile month across asset markets
•  S&P upgrade Russia’s long-term rating to investment grade

During February the return of volatility was a key theme across asset markets.  Early in the month, the VIX topped 50 (intraday) at one point after having averaged ~12 for the past 12 months triggering an ‘acceleration event’ in many inverse-volatility products with most halting trading.  Volatility across asset markets eased somewhat in the second half of the month but a sense of nervousness prevailed.

The yield on the UST 10 year rose 16 basis points to 2.86% at month end reflecting concerns about inflation, expansion of the US budget deficit and debt position in conjunction with a heavy UST issuance schedule to absorb.  Inflation has been a concern for market participants and the stronger than expected headline January CPI figure at 2.1% yoy did not help sentiment, although we view the current uptick in inflation as transitory. By month end a build-up in short positions amidst a period of heavy UST issuance suggested a good deal of negative news has already been factored in.  The dollar (DXY Index) finally found its feet mid-month to close 1.66% higher, however, still down year-to-date. 

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NFA Global UCITS Monthly - January 2018

  • The Fund’s QDUSD class fell 0.74% in January
  • Fixed income markets pressured: taper concerns, heavy UST issuance schedule
  • US Dollar weakness a key theme

Fixed income markets started the year on a weaker note. Concerns that central bank tapering may be spreading beyond the US was one factor behind this: an announcement that the BoJ would trim its purchases of longer-dated JGBs, a set of more hawkish minutes from the ECB in conjunction with a report, subsequently denied, that China may reduce UST purchases unnerved investors.  As expected the Fed left interest rates unchanged and described economic activity as rising at a ‘solid rate’, although Q4 GDP disappointed expanding at a 2.6% annualised rate.

Against this backdrop, a heavy US Treasury borrowing schedule of USD 441bn for Q1 versus USD 282bn in Q1’17 put Treasury yields under pressure. The yield on the UST 10 year backed up 30bp to end the month at 2.71% and the UST yield curve steepened with the spread on the 2s10s increasing to 56bp from around 50bp at the start of the month. The general weakness extended to Europe where the yield on the 10 year Bund backed up 27bp to end the month at 0.7%. The US dollar index (DXY) weakened significantly (-3.3% MoM), notably on the back of Mnuchin’s comments at Davos.

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NFA Global UCITS Monthly - December 2017

• The Fund’s QDUSD class 0.37%, +8.68% in 2017
• As expected the Fed raised interest rates by 25 bps
• US tax reform continues to make progress

The Fed raised the target range of the Federal Funds rate by 25 bps to 1.25-1.5% at the December meeting. Fixed income markets had low trading volumes and periods of softness on generally stronger economic data points, progress on tax reform and some upward revisions to US GDP growth estimates. However, an end of year rally meant the 10 year UST yield ended the month unchanged. The UST yield curve flattened taking the spread between the 2-year and 10-year benchmarks to decade lows during the month, and the spread between the 5s30s tightened to 10-year lows on the penultimate trading day. The DXY weakened ending the month 1% lower.
  
The Fed’s updated set of economic projections was a key focus for markets. The median projection for the Fed funds rate is unchanged looking for three 25 bps hikes in 2018 and two in 2019. Importantly, in spite of some upward revisions to the committee’s growth forecasts and reduced slack in the labour market, the committee’s median forecast for core PCE inflation was left unchanged at 1.9% for 2018 and 2% in 2019.  According to Janet Yellen, ‘most’ participants had factored in some fiscal stimulus and changes in financial conditions as progress continued to be made on US tax reform.

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NFA Global UCITS Monthly - November 2017

  • The Fund’s QDUSD class rose over the month 0.25%, YTD 8.27%
  • US Treasury yield curve continued to flatten
  • Brent crude continues to rally in anticipation of production cut extension

The yield curve continued to flatten over the month with the yield on the UST 30 year falling 5 bps to yield 2.83% at month end while the 10 year UST yield edged higher to 2.41%. The spread between the 2 and 30 year Treasury compressed to its lowest level since 2007 as it pushed below 1% at one point during the month.

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NFA Global UCITS Monthly - October 2017

• Fund’s QDUSD class gained 0.21% over the month; +8% YTD
• Uncertainty about next Fed Chair and ‘solid’ economic data pressure Treasuries
• ECB scales back QE to €30bn per month but extends the term

Despite a rally into month end US Treasuries struggled to make headway; the yield on the 10 year rose 5 basis points to end the month at 2.38% although the 2yr-30yr curve bear flattened. Inevitably, there was some skittishness ahead of the announcement of the nomination for the next Fed chair and the implications this has for policy. Into month end, Jerome Powell appeared the favourite which gave the market some comfort as it implies a high degree of policy continuity. Investors continued to look for a further rate rise in December and data on the US economy generally showed the economy growing at a solid pace but importantly the inflation data continued to remain benign. The Republicans did make some progress by getting the budget resolution adopted by both the Senate and Congress and getting closer to presenting draft legislation on tax reform but the process is likely to be tortuous and it is too early to tell if it will provide much in the way of a growth stimulus.


This backdrop supported the US dollar index (DXY) which gained 1.6% over the month. Brent crude gained 6.7% mom helped by hopes of an extension in production cuts and uncertainty about production from the Kirkuk region in Iraq.

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NFA Global UCITS Monthly - September 2017

  •  The Fund’s QDUSD Class was down 0.21% in September; up 7.78% year to date
  •  Fed held rates, but more hawkish rhetoric insinuates a further rate hike in December
  •  Russia's long-term debt outlook upgraded to positive by Fitch
  •  Tax reform and subsequent effect on debt ceiling will be monitored closely

A mixed month across asset markets was once again driven by geopolitics and central bank rhetoric. Fed Chair Yellen’s seemingly hawkish tones drove a sell-off in UST yields; this was further compounded by the proposed ‘revolutionary’ US tax plan. What concerns us is the tax-plan’s eventual effect on the debt ceiling; we expect to hear more on this by year-end. Nonetheless, the yield on the 10-year UST was up 22bps and USD gained momentum; the DXY Index closed the month 0.44% higher. 

Meanwhile, the Fed held rates at 1%-1.25%, we heard further mixed messages from Fed members with those in acceptance of lowly inflation calling for further hikes, while others remained concerned of hiking too quickly with lacklustre price pressures. The futures market, however, received a wake-up call after Yellen’s address, where she reiterated that a December hike is clearly a possibility. Gold unsurprisingly nosedived in September; meanwhile Brent rallied 7.48%.

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NFA Global UCITS Monthly - August 2017

  • Fund’s QDUSD class gained 1.34%; +7.96% YTD
  • Geopolitical tensions and benign inflation outlook support a Treasury rally
  • Fed expected to start balance sheet adjustment in September and leave rates unchanged
  • US dollar remains on the back-foot

August was a generally positive month for bond markets as increased geopolitical tensions on the back of North Korea’s missile launch program supported safe haven assets and a still benign US inflation outlook helped Treasuries; the 10-year US Treasury yield fell 17 bps to yield 2.12% at month end.

There have been some strong data points on the US economy, notably US consumer confidence which hit the second highest level since 2000 and the second estimate of US Q2 GDP (quarterly annualised) which was revised up to 3% with a strong upward revision to the consumption data. However, and more importantly, inflation and wage data releases continued to paint a benign picture muting expectations for further rate rises later this year. For example, the July PCE deflator came in at 1.4% for both the headline and core readings. As a result consensus seems to have built for the Fed to start its balance sheet adjustment program in September but take a ‘wait and see’ approach to further interest rate rises.

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NFA Global UCITS July 2017

  • The Fund’s QDUSD class rose 1.12% and +6.54% year to date
  • Fed left rates unchanged but expects balance sheet normalisation to begin ‘relatively soon’
  • US dollar index fell 2.9% over the month
  • Kuwait and the US mediate the Saudi-Qatar spat; GCC bonds perform solidly

July was generally a positive month across asset markets; the VIX index of volatility reached another new low, the S&P another record high and commodities, notably oil and copper, made strong gains. US Treasuries ended the month little changed: the yield on the 10 year compressed 1 basis point to 2.29% at month end.

The Fed left rates unchanged at its July meeting but indicated that it expects to begin its balance sheet normalisation program ‘relatively soon’ assuming ‘the economy evolves broadly as anticipated’. Economic data releases were mixed; the Chicago Fed National Activity Index, a broad based indicator of 85 economic variables, showed a modest improvement to 0.13 in June but missed market expectations. The labour market continued to recover in terms of jobs added but wage data remained benign. Inflation data remained soft (June core PCE inflation came in at 1.5% yoy) which dissipated some of the market’s expectation for future interest rate rises. The IMF downgraded its US GDP forecast to 2.1% for 2017 and 2018 given ‘policy uncertainties’ and a baseline assumption of no change. Against this backdrop, the dollar continued to weaken with the US dollar index falling 2.9% over the month. The euro appreciated as investors continued to anticipate the ECB was getting closer to reducing its stimulus. In the Middle East, the Saudi Arabia et al spat with Qatar continued. Some progress was made when the US stepped in to mediate as Qatar signed a memorandum of understanding with the US on anti-terrorism measures. Middle Eastern credits traded stronger on the back of this although negotiations seem to have reached an impasse for the time being.

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NFA UCITS Monthly - June 2017

• The Fund’s QDUSD class fell 0.53% over the month and is +5.35% YTD
• As expected the Fed raised rates 25 bps;
• More hawkish comments from central banks put bonds under some pressure
• US dollar index weakened over the month
• Saudi‐Qatar spat puts GCC bonds under some pressure; diplomatic resolution expected

June was a mixed month across asset markets with a pickup in volatility into month end. US
Treasuries conceded some ground; the yield on the 10 year Treasury rose 10 bps to yield 2.3% at month end despite inflation data remaining benign. As expected, the Fed raised rates by 25 bps taking the view that the labour market ‘continued to strengthen’. They noted inflation is below the 2 percent objective in the near term but is expected to stabilise around this level over the medium term although they are ‘monitoring inflation developments closely’. The committee left the ‘dot plot’ unchanged until 2018 and moved it slightly lower in 2019 and some more details on ‘caps’ for portfolio runoff were given, although Fed Chair Yellen only went as far as saying the plan could be put ‘into effect relatively soon’ and that the unwind will likely be completed ‘a few years down the road’. The dollar index remained on the back foot falling 1.34% over the month.

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NFA UCITS Monthly - May 2017

• Positive month for bond markets: Fund’s QDUSD class gained 1.21% and +5.92% YTD
• Fed expected to raise rates in June and UST yield curve flattens: Fed ‘ahead of the curve’
• Treasuries and the Russia holdings amongst the portfolio’s top performers
• US dollar retreats back to
pre US election levels

May was generally a positive month for bond markets helped by a solid performance from US Treasuries and the VIX index of volatility making what was then new lows albeit with a temporary spike as yet another Brazilian President, this time Michel Termer, faced investigation over bribery allegations. A combination of some mixed US economic data and President Trump’s political difficulties dampened expectations for meaningful growth boosting policy initiatives. The US Treasury 10 year yield compressed 8 bps to 2.2% at month end and the Treasury yield curve flattened as a benign inflation picture increased confidence that the Fed is ‘ahead of the curve’. The US dollar index retreated 2.15% back to pre US Presidential levels.

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NFA UCITS Monthly - April 2017

• Generally positive month for bond markets; Fund’s QDUSD class gained 1.02%
• US dollar index weakened; Trump’s pro-growth policies are slow to get implemented
• Risk-on bias into month end; French Presidential election result as expected
• Fed still on track to raise rates although recent economic data releases have ‘softened’

Generally positive month for bonds; the 10 year UST yield fell by 11 bps to 2.28% at month end and investment grade credit spreads tightened benefiting from more of a risk-on bias into month end. The swing in sentiment was mirrored in the VIX index of volatility which spiked to a 5 month high mid-month only to reverse this and reach the lows of the past 10 years.

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NFA UCITS Monthly - March 2017

• Positive month for bonds; Fund’s QDUSD class gained 0.79%
• Fed increased rates 25 basis points in a widely expected move
• 10 year Treasury yield unchanged over the month and credit markets well supported
• US dollar retraced some of the previous month’s gains

The 25 basis point Fed rate hike was so clearly flagged to the market that it ended up being a non-event, although the market drew some comfort from a perceived dovish tone to the FOMC minutes and Janet Yellen’s comments which talked of near-term risks as being ‘roughly balanced’. On the back of this, the 10 year US Treasury yield was unchanged at 2.39%. The failure of Donald Trump to get his Health Care Act passed on the first attempt highlighted the gap between campaign rhetoric and what is likely to get approved by Congress. Clearly, tax reform and deregulation were also major election promises and will be keenly watched to see what can actually be implemented.

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NFA UCITS Monthly - February 2017

• Positive month for bonds; Fund’s QD USD class gained 1.60%
• Stronger data and Fed speaker comments shift market expectations to a March rate hike
• Credit markets well supported and new issuance was readily absorbed
• US dollar index strengthens

February was a positive month for asset markets: equity markets such as the S&P 500 reached new highs as data releases buoyed optimism about an improving growth outlook. Accompanying this, market expectations for a US rate rise shifted forward so that by month end the Fed Futures were discounting ~80 percent chance of a rate hike in March having been closer to 30 percent earlier in the month. This reflected a slew of generally strong data releases, Janet Yellen’s testimony to US congress and commentary from Fed officials. Later in the month, William Dudley, a known ‘dove’ and voter on the FOMC, stated ‘the case for monetary policy tightening has become a lot more compelling’. In spite of this, the yield on the 10 year US Treasury compressed 6 basis points to end the month at 2.39% and the yield curve flattened; we see the Fed as acting ahead of the curve and expect the yield curve to continue to flatten. The US dollar index gained 1.62% over the month helped by the stronger data and mounting expectations for a rate rise.

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