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Net performance was positive at +0.55%. The portfolio performed very well in a toxic environment of risk asset deleveraging and lower liquidity. The driver of the markets outsized moves was President Trump’s Apr-2nd “Liberation Day” tariffs, which were every bit as extreme as billed in previous interviews.
The ensuing VaR shock caught leveraged market participants wrong footed, particularly Asian focused equity funds, and a forced deleveraging was the result. This action impacted the cornerstone of global liquidity – US Treasuries – where a lacklustre auction and excess inventory in the market resulted in higher yields and much wider spread to equivalent swap rate (a measure of liquidity and credit worthiness). In the event, swap spreads blew out between 10bp to 20bp, and 10y yields moved higher 50bp, whereby Trump was forced into delaying the tariffs by 90 days, with the remaining 3 weeks of April being significantly quieter.
Over a busy month the portfolio added 3 new strategies while 3 trades hit target, 2 stopped out and 3 trades expired.
Cross Currency Interest Rate positions performed well.
The main contributions came from a reshaping of the CAD interest rate curve vs the USD interest rate curve. Profits came from the cheapening of the 3y and 4y sectors and richening of the 5y to 10y sectors. These moves were captured by positions in the 2y2y spread and a 5y10y flattener box. Draws in this category were limited and overall, the trades contributed +38bp.
Curve positions produced a draw on performance. The main contributions came from an abrupt global steepening of long end maturities, with shorter end curve relationships such as 2s5s and 2s10s varying currency by currency. Current positions were exposed to the moves in the longer end of the GBP curve; however, this was partially offset by the flattening of the Gilt curve in 61s71s. The draw equated to -22bp in performance.
Volatility positions added much stability to the portfolio as well as positive performance. The main contribution came from the significant uptick in uncertainty increasing the level of premiums on these insurance-like products. These moves were captured in the JPY 20y sector, AUD 10y sector and CAD 10y sector. A position in GBP 10y also performed well initially in the month, however fully monetising the time decay into expiry proved challenging, resulting in a draw. Overall, these trades contributed +18bp.
Spread positions were a draw on performance. The main contributions came from the disconnect in yield moves between sovereign bonds and their respective interest rate curves. Positive returns were captured in the 20y to 25y sector of Gilt asset swap spreads. However, draws came from the 7y to 15y sector of the JPY spread curve and the 10y30y Italian spread curve. Given the excessive volatility these 2 spread curves underwent as April’s deleveraging occurred an excessive draw could have been expected. However, the resulting draw was -49bp in performance, which is a restrained outcome and demonstrative of a portfolio constructed with diversification in mind.
FX positions performed well. The main contribution came from the Eurozone transitioning towards a destination seen to have increasing investment opportunities and having a more stable political environment. So, the Euro’s reputation as a reliable store of wealth has increased. This move was captured by a EURGBP long, which performed strongly contributing +30bp. Draws in this category were limited.
Inflation positioning resulted in a draw over the month. The main contributions came from inflation curves moving lower in response to slower global growth. A draw came from a long position in RPI, initiated to take advantage of the low pricing vs expected globally higher inflation rates. The draw resulted in -36bp in performance and the exposure was reduced.
Duration positions performed strongly. The main contributions came from the 0m to 6m interest rate sector rallying in the face of uncertainty and a global slowdown. Defensive positions implemented in November and February to take advantage of the market’s limited pricing of negative economic scenarios captured these moves. Specifically, these were positions in June 2025 interest rates in GBP and JPY as well as 10y AUD, which combined to contribute +44bp to performance. Draws in this category were also limited.
