2 minutes read time
July net performance was positive at +0.36%. Volatility was much lower than during Q2, reflecting the gradual extension of tariff deadlines, and tariff agreements to levels rates than the shock levels of Liberation Day. Volatility markets dutifully receded back to January lows. Positive jobs data is indicative of a robust labour market; meanwhile sticky inflation forced the Federal Reserve to again leave policy rates unchanged for the 7th consecutive month. US wholesale rates backed up modestly as cuts were pushed out, the curve flattened, and USD bounced on partial unwind of consensus positions.
The portfolio added 6 new strategies while 1 hit target, and 4 trades expired.
Curve positions contributed -16bp to performance. The draw mainly came from inflation-indexed bonds in Italy and the UK, with some positive offset from long maturity IRS curve positions in EUR and GBP.
Duration was a small positive, due to a payer fly in 1yr US capturing the backup in short maturity rates.
FX positions were net flat over the month with our one FX trade in EURGBP options having expired in July.
Inflation positioning resulted in a +12bp contribution over the month, largely due to higher UK RPI and US CPI expectations.
Spread positions were again the biggest contributor with +34bp. This was predominantly driven by a French IOTA position in addition to a UK Inflation bond flattener and a compression trade of a forward CAD asset swap.
Volatility positions retracted -19bp of previous gains as the markets subsided. The largest draws came from GBP 1yr exposure as the BoE pushed cuts further away, while CAD rates and FX volatility declined further. A long EUR 10y rates vol vs GBP position provided somewhat of a positive offset for this decline.
Cross Currency Interest Rate positions contributed a net positive of +8bp. The main contribution came from the performance of GBP rates relative to their SEK counterparts in addition to USD rates compressing and hitting target vs CAD between the 2 and 4 year maturities.
