November was a sharp reversal of trends seen in the prior months. The UST10y rejected 5% and rallied nearly 60bp, and the US2-10 curve, which had flattened 45bp at one point, finished the month 30bp flatter. All the volatility in rates was very much a push back against the “higher for longer” mantra. US NFP jobs data early in the month was below forecast and then swiftly followed by lower than expected inflation data. Corporate earnings season exposed outlooks that were generally weaker. These factors contributed to a change of sentiment and moving pricing of cuts earlier in 2024. This also led to a reversal of the short duration positioning, which into the lessening liquidity of Thanksgiving, produced quite a vicious move. A few high profile investors: Druckenmiller, Gross and Ackman also spoke of their book going long bonds which added fuel to the fire.
The UK mini budget thankfully provided considerably less contention than a year ago, but still hinted to a potential snap election in spring 2024. The only active central bank in November was the RBA, surprisingly hiking by 25bp, but as Australia is experiencing second round effects of wage inflation, and a remarkably robust housing market, the potential was always apparent. Conversely the Swedish Riksbank paused for the month, despite the market having priced in 50% of a hike.
We have recently been taking profit on steepeners, decreasing short duration, while increasing volatility exposure, which has proven to be the right thing to do. Much of the aggressive market reversal has been mitigated to a reasonable extent. Yields and curves have been unwinding moves of combined prior months, and yet the portfolio has only given back a portion of the last months profit.
The US 10y closed the month 60bps lower and 5s-30s swap was 4bps steeper.
