March 2026 net performance was negative -0.20%. Whilst a draw for the month is not what we aim for in an absolute return strategy, we can take heart that this was a month of extreme unpredictability after the sudden attack by Israel and the US on Iranian military and nuclear targets. Positioning which had in general become more dovish with long duration as general inflation and employment data cooled elsewhere, reflecting increased confidence of Fed rate cuts. These positions were swiftly exited after the joint attack at the end of February. The narrative quickly changed to a global energy shock that continues to confound positioning as its immediate inflationary impact is potentially offset further down the track by a reduction in confidence and growth. The longer the Hormuz Strait is closed, recessionary risks increase.
The portfolio added 5 new trades, 3 trades were unwound, (1 target, 1 stop out and 1 expiry).
Curve positions added +6bp to performance. Positive trades in EUR real rate swap steepeners and Bund fly was partially offset by Gilt linker curve and fly trades.
Duration was positive +2bp, mostly coming from an outright short position in 5yr Germany and 10yr Gilts.
FX positions were negative -6bp as GBP continued to outperform JPY.
Inflation positioning resulted in a -11bp draw over the quarter, mainly due EUR HICP outlook rising more than US CPI.
Spreads positions were down -32bp. All due to forward Gilt swap spreads giving up gain from Q4 last year as renewed fears of inflation spike thwarting BoE cuts.
Volatility positions drew +19bp as markets quietened down. The largest gain was GBP 30yr maturity vol outperforming equivalent in EUR, followed by long AUD long end vol and some draw from EURJPY vs EURSEK as SEK was the most volatile G10 currency of the month.
Cross Currency Interest Rate positions were the largest draw of -21bp. The main hit came from JPY rates again underperforming USD and EUR counterparts along with GBP vs SEK. A small gain was provided by NOK rates performing vs SEK.
