Nervous Pessimism: Changes Looming on Dollar Strength
July 26, 2022
Read Time 1 MIN
The current atmosphere is such that everyone expects a recession, stocks continue to be beaten down, the euro has broken one with no obvious level at which to stop (and the same with the Sterling). But, Fed Futures are already pricing a cutting cycle starting next year and EMFX looks way oversold. Our defensive stance most likely does not have many more months to last. We believe that either the U.S. Federal Reserve (Fed) will blink (less likely) or the selloff in risk will continue until recession is priced, which is why we are so respectful of the curve inversion.
On a year-to-date basis, the Emerging Markets Bond Fund (the “Fund”) continued to outperform its benchmark. For detailed Fund performance and EM debt outlook, download the commentary.
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Duration measures a bond’s sensitivity to interest rate changes that reflects the change in a bond’s price given a change in yield. This duration measure is appropriate for bonds with embedded options. Quantitative Easing by a central bank increases the money supply engaging in open market operations in an effort to promote increased lending and liquidity. Monetary Easing is an economic tool employed by a central bank to reduce interest rates and increase money supply in an effort to stimulate economic activity. Correlation is a statistical measure of how two variables move in relation to one other. Liquidity Illusion refers to the effect that an independent variable might have in the liquidity of a security as such variable fluctuates overtime. A Holdouts Issue in the fixed income asset class occurs when a bond issuing country or entity is in default or at the brink of default, and launches an exchange offer in an attempt to restructure its debt held by existing bond holding investors. Carry is the benefit or cost for owning an asset.
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May 16, 2022
June 23, 2022
We believe the market has not yet priced in weaker growth projections. As such, we continue to increase low-beta spread duration and reduce exposure to EMFX.
May 23, 2022
Risks to growth may not be fully digested by the market, resulting in a transition to a high duration, low emerging market foreign currencies in our portfolio.
May 18, 2022
Emerging markets central banks were ahead of developed markets in hiking rates, and we believe EM local currency bonds may offer yield and diversification potential as U.S. rates rise.
May 16, 2022
Coming out of the Spring 2022 IMF meetings, we are looking to increase low-beta spread duration and decrease some EMFX exposure.