Monthly report
Fed joins G7 easing but signals gradualism
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Overview
A cautious easing cycle from the Fed remains the central case, despite an opening move of 50bp. This may limit US dollar weakness, particularly as geopolitical risks rise. Curves bull steepened further, as duration effects start to dominate in G7 easing cycles. China and EM bonds remain strongest performers YTD. JGBs gained in Q3 from yen rally.
Key highlights:
- Macro and policy backdrop – Fed signals a cautious easing cycle, barring shocks
- Yields, curves and spreads – Bull steepening continues, led by Treasuries
- IG credit and MBS – IG sector spreads converge, but BBB outperforms
- High yield credit analysis – Successful HY refinancing in H1, but spreads are tight
- SI sovereign bond analysis – Recent slow erosion of the SI-premium may be ending?
- Performance – Longs outperformed, but weak dollar dominated Q3 returns
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