Performance

February was a difficult month for bonds of all tenors. US treasury yields saw a significant repricing with the entire treasury yield curve shifting up. Credit spreads tightened slightly, but not enough to outweigh higher treasury yields thus causing a downward repricing of corporate bonds. The repricing came on the back of higher than expected inflation data which led markets to re-evaluate future monetary policy. Markets now expect rates to go higher and to be kept at a higher level for longer than at the end of January. Our fund showed a performance of -2.9%* for the month of February. The data on inflation for January came in mostly higher than expected. The growth in the US Consumer Price Index [CPI] came in at 0.5% MoM and 6.4% YoY, which represents a significant increase in MoM growth when compared to December. The growth in the Personal Consumption Expenditure Price Index, the US Federal Reserve’s [FED] preferred inflation gauge, came in at 0.6% MoM and 5.4% YoY for the month of January. Both numbers came in higher than expected. FED officials comments throughout the month continued to restate their thesis, that monetary policy is still not sufficiently tight enough, and that rates will have to go higher for longer. Derivative markets throughout January saw a repricing with most derivative products now suggesting that market participants agree with the current FED thesis. The implied terminal policy rate by FED funds futures as of the 28th of February is 5.4%, with market participants expecting the FED funds rate to peak in July of 2023. The unemployment rate for the month of January came in at 3.4%, better than expected. Revised Gross Domestic Product [GDP] growth came in at 2.7% annualized for the 4rth quarter of 2022, representing a downward revision from the previously quoted 2.9%. Overall the data received in February continues to suggests that despite overall economic tightening, the labour market remains tight, GDP growth remains strong and price growth remains significantly elevated. Further increase in rates and overall monetary tightening is to be expected going forward. February, in contrast to the previous month, saw outflows from emerging market funds. Russian bonds continued to exhibit low sensitivity to changes in treasury yields thus causing the relative weights of Russian bonds to increase. We continue to receive coupon payments from non-sanctioned Russian bonds, however, tougher compliance from the bank causes most payments to arrive with a delay. Our fund closed the month of February with an average duration of 4.69 years, an average yield-to-worst of 13.35%, and leverage at -54.5%. Leverage mostly increased as a result of bond repricing. * Net performance, B1 shares.