- 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.