July 2026 net performance was positive 0.56%. July was dictated by a renewed repricing higher in G10 rates as the market moved away from the benign disinflation narrative that had dominated into quarter end. The resumption of US-Iran hostilities and renewed pressure on energy prices pushed inflation risk premia back into curves, while central banks were forced to balance softer underlying growth momentum against the risk of second-round effects. Global sovereign yields rose across the major developed markets, with the move most pronounced in long-end UK, US, Australian and New Zealand duration, while Japan continued to price a higher terminal rate for the BoJ. The dominant theme was bear steepening of 2y v 10y yields as fiscal supply, energy risk, increased competition for capital and reduced confidence in forward guidance lifted term premia. The ECB held rates in late July after the June hike, the BoE maintained Bank Rate with a hawkish split, and the Fed under Chair Warsh was unchanged target rate but with no forward guidance. The result going forward is likely to be a more volatile rates environment, with cross-market divergence providing the months main opportunity set.
The portfolio added 3 new trades; 2 trades were exited.
Curve positions detracted -9bp. Losses were led by the NZD RBNZ flattener, EUR BTPei fly, USD WNZ5 basis and USD curve steepener. Gains from the EUR DBR butterfly, JPY curve flattener and NOK steepener partly offset the drawdown.
Duration detracted -3bp. The NZD front-end IRS long was the main drag, partly offset by gains from the EUR ECB long and exited USD Fed Funds short.
FX added +3bp, driven by GBPUSD and GBPJPY shorts. AUD/NZD was immaterial.
Inflation added +9bp, led by EUR HICP versus US CPI, with a smaller gain from USD CPI.
Spreads were broadly flat. Gains from GBP UKT and CAD swap spread positions were offset by losses in EUR sovereign and inflation-linked spreads.
Volatility added +2bp. AUD rates vol and EURJPY versus EURSEK vol were the main positives, largely offset by CAD FX, USD rates and JPY vol losses.
