FP Carmignac Global Bond

August was marked by a normalisation of US employment data, with job creation returning to pre-covid levels and unemployment rising to 4.3%.

While this raised concerns about the risk of a hard landing for the US economy, the sell-off was short-lived as other indicators showed a picture more consistent with a soft landing.

The other major event of the month was the Jackson Hole meeting, where Jerome Powell gave a dovish speech, adding to the bull-steepening of the month.

Growth remains sluggish in Europe and disappointing in China. In China, manufacturing activity continued to contract, as did domestic activity and oil consumption.

August was a strong month for EM assets, with returns from both hard currency and local currency assets.

On the currency front, the USD fell over the month, while Asian currencies benefited from the unwinding of the Japanese yen carry trade.

Despite risk aversion at the start of the month, credit spreads on the Itraxx Xover index tightened by -10bp, while the euro and US yield curves steepened, with 2-year yields easing by -14bp and -34bp respectively.

The Fund ended the month with a positive absolute return outperforming its benchmark.

The main contributors to performance this month were rates and credit, while our currency positioning suffered.

Within rates, our long position in US rates made a positive contribution, as did our exposure in Mexican, Canadian and Australian rates.

Within credit, EM external debt spreads were the main positive contributors, led by our long positions in Côte d'Ivoire and Senegal.

Lastly with regards to currencies, the USD and the Mexican Peso were the main detractor from performance, while the South African rand performed reasonably well during the month.

In this soft-landing context, we continue to like duration assets. In core countries, we prefer real rates, while in EM we are long LatAm and Eastern European local currency rates.

Indeed, we have increased our exposure to Brazilian rates as we are pricing in a large number of rate hikes, which we believe are overdone. We are cautious on credit and have added hedges on the Itraxx Xover to protect the portfolio from the risk of spread widening.

On the EM external debt front, we continue to favour special situations in countries where the economy is undergoing significant restructuring or improvement.

Finally, we remain cautious on currencies with particularly low exposure to the USD and EM currencies. However, we have started to add to our long positions in the Brazilian real and the Mexican peso following their undervaluation. We also remain long the JPY.