November net performance was a positive +1.09%. The month welcomed data back from the BLS after the longest Federal shut down in US history. The data itself was muddied by insufficient polls or backdated to September and therefore outdated. However, on balance it pointed to weakening inflation and retail sales, against that, reduced employment is yet to materialise. There was no Nov Fed meeting scheduled, but the minutes from October exposed a divided committee, with concern over both sides of their mandate. In the end the market was guided by NY Fed Governor and vice chair Williams along with Governor Waller, who both expressed room for another cut before year end. Pricing of a Dec cut moved from sub 50% to 90%, with two more in 2026.
The BoE held steady on rates in Nov, but the split of 5-4 firmly moved pricing of a cut in Dec to above 90% too. The UK budget ended up providing less fiscal impulse than feared with reduced issuance in long end gilts and thus they performed well and flattened at the end of the month, reversing earlier weakness into the event. The BoJ also maintained their tough talk on raising rates with December now priced at 90% and long end yields reacted by gaining another 20bp over the period. Strong employment data in Australia evaporated any pricing of RBA cuts in 2026.
The portfolio added 4 new trades, 3 trades were unwound, (1 stop out and 2 expiries).
Curve positions were -1bp to performance. Positive trades in GBP long end curve positions were offset by draw as the Australian short end curve steepened.
Duration was positive +5bp, mostly coming from an outright short position in the front end of USD curve.
FX positions were negative -1bp.
Inflation positioning resulted in a -5bp draw over the month, due to the move lower in US inflation expectations.
Spread positions were up +25bp. As the yield differential between Italian BTPs and other Eurozone issuers continued to tighten to levels not seen since 2010, the yield premium built into longer dated Italian bonds continued to decline. This continued to benefit the long-held BTP spread flattening exposure. EUR Estr/Euribor basis widener also contributed with some reversal of UK gilt spreads providing a draw after October richening.
Volatility positions added +15bp as markets revived. The largest benefit provided by long AUD rates vol and also by relative performance of EURJPY vs EURSEK fx vol.
Cross Currency Interest Rate positions contributed +39bp. The main alpha came from GBP and NOK rates compressing vs SEK rates in medium maturities. Additionally, the NZD curve flattened vs a blend of other dollar block markets.
