Monthly report
Relative value and convexity favors Treasuries
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Overview
With no GFC, or pandemic, a slow-motion easing cycle is underway, led by Europe. US treasuries cheapened versus equities, and credit, and are well placed for Fed easing, or a risk-off phase, given their convexity. High yield credit outperformed YTD but valuations are now more stretched.
Key highlights:
- Macro and policy backdrop – a slow-motion G7 easing cycle is underway
- Yields, curves and spreads – signs of curve dis-inversion as easing cycle begins
- IG credit and MBS – Less relative value in credits and negative convexity traps MBS
- High yield credit analysis – Strong EM HY, but signs of HY rally stalling in G7
- SI sovereign and corporate bond analysis – Duration continues to dominate narrative
- Performance – Short governments, NZ and Swedish bonds strongest in Q2
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