September had only the ECB, Norges and Riksbank each raise base rates by 25bp. The remainder of G10
central banks have stood pat, and unlikely to change target rates in the near term. The bear steepening
trend has continued with concern about increased bond issuance taking yields back to 2007 levels.
Buyers have not appeared as yet, and with central banks decreasing balance sheets via QT, and SWF’s
selling bond holdings, the rates market is struggling to find a clearing price. The ‘higher for longer’
mantra is finally being taken at face value, and with the diminished odds of a ‘Fed Put’, are beginning to
effect pricing in other asset classes. The 10Y term real rate has also been increasing, cementing tighter
financial conditions, and leaving market participants nervous about refinancing pressures yet to come. The
ingredients are in place for sustained pressure on any leveraged or zombie like companies or funds (REITS,
PE), elevating nervousness in the market about the odds of something else breaking.
Our portfolio reaped the benefits of steepening yield curves and finished the month and the quarter on a
positive. We have sought to increase the number of protection like trades on the fund, have taken some
profits, and are wary of a volatile and less liquid last quarter of the year.
The US 10y closed the month 47.7bps higher and 5s-30s swap was 13.1 bps steeper.
