April 2026 net performance was negative -0.08%. As the Middle East conflict between the US, Israel and Iran entered its second month, confusion continued to beset the market and central bankers alike. The energy shock’s likely impact on inflation stood in stark contrast to the confidence and growth in many core G10 economies. Dwindling energy supplies were exacerbated by a US blockade of Iranian oil shipments (to China), following the collapse of negotiations between the US and IRGC in Islamabad mid-month. However, a tentative ceasefire was agreed to by the end of the month, which is being stretched to its limit as both sides periodically launch missiles at land and sea targets. The key point of the standoff remains US insistence on the complete surrender of Iran’s enriched uranium, and Iran’s reluctance to give it up.
Yields gyrated throughout the month. Expectations of a resolution pushed rates lower, only to be dashed and reversed at a later stage. Petrol and food prices began to feed through to economic inflation data, whilst jet fuel looks likely to be severely rationed during the summer holiday season, forcing a change of policy towards unused flight slots. The market still retains some degree of hope as volatility and forward rates continue to be biased towards peace. Inflation products, however, move higher as the impasse takes its toll.
The portfolio added 2 new trades; 1 trade was exited.
Curve positions added +19bp to performance. Positive trades in EUR Bund fly along with JPY long end flattener and US WNZ5 basis were the main contributors.
Duration was negative -11bp, mostly coming from a long position in short end GBP and outright short positions in 5yr Germany and 10yr Gilts.
FX positions were negative -5bp as GBP continued to outperform JPY and AUD vs NZD.
Inflation positioning resulted in a +14bp over the quarter, mainly due to EUR HICP outlook lowering more than US CPI.
Spreads positions were flat.
Volatility positions lost -44bp. The largest draw was GBP 30yr maturity vol underperforming equivalent in EUR, followed from EURJPY vs EURSEK as SEK continued to be the most volatile G10 currency of the month.
Cross Currency Interest Rate positions were a draw of -4bp. The draw came from GBP vs SEK and AUD forward rates vs NZD. A gain was provided by NZD flattener reversing previous losses against dollar block.
