October was the first month since January 2022 to not have a single G10 central bank move a base rate higher. You could argue that’s not quite the case, as technically the BoJ abandoned its YCC cap on the 10yr JGB, but it didn’t change its NIRP, yet. The lack of hikes was because most data is softening, and partly because the continued rise in term rates is tightening financial conditions enough to allow a policy pause at a minimum. As mentioned last month, refinancing obligations and discount valuations are undergoing stress, driving bond yields higher and broad equities lower. The new geopolitical war in the middle east set off a round of volatility in energy markets but was quickly subdued in a historical context, as Iran has so far been excluded from direct hostilities. Crude oils initial leap has all but backtracked on softening economic outlook. Central banks are talking tough, but markets in the second half of the month became increasingly in the mood to challenge the “higher for longer” narrative, by shortening the timeline until a rate cutting cycle starts.
Our portfolio reaped the benefits of the initial bear steepening and then from the later bull steepening and finished the month on a positive. We have sought to increase the number of protection like trades on the fund, have taken some profits, and are wary of a volatile and less liquid, last quarter of the year.
The US 10y closed the month 38bps higher and 5s-30s swap was 14bps steeper.