Monthly report
Treasuries front-run the Fed as growth slows
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Overview
Amid weaker Q3 growth, and signs of risk-off, US Treasuries benefit from extra duration and convexity. Nominal yields led real yields lower in July, as markets anticipate a bigger Fed easing move in September. JGB returns were boosted by the yen, as rate differentials with the US narrowed. Credit performed well YTD, but spreads are tight.
Key highlights:
- Macro and policy backdrop – Fed shift to focus on dual mandate important
- Yields, curves and spreads – Excluding Japan, easing moves drive curve dis-inversion
- IG credit and MBS – BBB credits continue to lead returns, RMBS spreads stabilize
- High yield credit analysis – Banks and manufacturing outperform
- SI sovereign and corporate bond analysis – Green sovereigns’ duration helpful
- Performance – Yen drove JGB gains in July; policy easing boosted other markets
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