NGGBF UCITS Monthly - August 2019

  • The Fund’s QDEUR hedged class gained 5.49% (net of fees) in August; +15.94% YTD

  • More mixed performance across assets as high grade and high yield diverged

  • Further tariffs on Chinese goods announced by the US

  • US yield curve bull flattened, biggest fall in 10-year USTRs since Jan 2015

  • Argentina primary election shocks, Brexit risks remain

  • We think there is much more “left in the tank” regarding our bond positions as valuations still “cheap”

  • The path for global rates is lower

Another notable weak economic data was German GDP which came in at -0.1% for Q2 (the second time in 12 months) signalling both weak domestic and international demand. As such, Bund yields fell a further 11 basis points to -0.69%! By the end of August, a market value of USD 16.8 trillion of debt was trading with negative yields.

“Safe havens” were sought by investors as equity markets & oil struggled (S&P -1.8%, DAX -2.1%, Topix -3.4%, CSI300 -0.9%, Oil -5.6%) whilst fixed income and gold prices rose. However, it was the UK that fared particularly badly (FTSE100 -5%) as Prime Minister Boris Johnson decided to prorogue parliament for five weeks in an attempt to prevent the Commons debating or frustrating a potential no-deal Brexit.

Elsewhere, it was Argentina that surprised markets when leftist candidate Alberto Fernandez defeated incumbent Mauricio Macri in a key primary election which then led to a 22% fall in the value of the currency, and a 50% fall in the price of the ultra-long government bond as the market aggressively priced in the real possibility of default.

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