Performance

The month of April was marked by ongoing geopolitical tensions brought by the Russian-Ukrainian conflict, along with supply chain constraints and worries around heightened inflation. The sanctions against Russia have continued being imposed. The surging US Treasury yields have grown to a larger extent. These factors impacted our fund’s performance* in April: -6.0%. In the first week of the month, markets were eagerly waiting for the minutes of the FOMC’s March meeting. This to some point explains the US Treasury yield curve inversion, which reflected worries about the potential recession as a result of the monetary policy tightening by the Fed, for bringing inflation down from 40-years highs. The released minutes brought some clarity, indicating that the balance sheet unwinding would be started later in the second quarter of the year at a pace twice as that in 2017-2019. The future interest rate hikes were confirmed to possibly be at the level of 50 bps, several times throughout 2022. Afterward, by mid-April, the yield curve became upward-sloping again and has been shifting higher since then. Markets slightly calmed down when the US CPI March readings came lower month-over-month than previously, though still depicting a high year-over-year inflation growth. PPI, however, did not show signs of price surge slowing down. That is because commodity prices are still high, and supply chain disruption issues have been persisting, with lockdowns in certain Chinese regions adding woes to the latter as the country’s "zero-tolerance" Covid-19 policy has been causing difficulties to the supply side. The US core PCE value, published at the end of April, came lower than expected (year-over-year), making investors question whether inflation is slowing down; the picture is though not clear. In the current situation with geopolitical instability, the central bank's hawkish stance, unequal supply and demand environment, and concerns related to the global impact of lockdowns, we stick with the «wait-and-see» approach. We did not make any changes to our allocations and continue to follow our strategy until financial markets stabilize and start lifting off. Our fund closed the month of April with an average duration of 5.2 years, an average yield-to-worst of 10.0%, and leverage at 61.8%.