In September 2022, 1/Busy Central Banks, 2/Equity and Fixed Income Down (again) and 3/ the Gilt, the Pound and the BOE Intervention
1/Busy Central Banks. The ECB’s historic 75bps hike is aimed to curb elevated inflation. More rates increase will potentially take place. The Fed increased its benchmark by 75bps for the 3rd time in a row. The short end of the US curve is under more pressure than the longer end. Sweden’s Riksbank surprised with a 100bps hike. Indonesia was also more aggressive than expected.
2/Equity and Fixed Income Down (again). The MSCI All Country World spent only 1 week in positive territory. It declined by 4.29% in September. The Bloomberg Global-Aggregate of the sovereign debt and IG, as measured by the LEGATRUU, declined 5.14%. European and US sovereign yield kept rising and both hit highs at the end of the month. The CDS on the EUR and US IG climbed by 15.16bps and 15.65bps to 134.67 and 108.02 respectively. As a measure of uncertainty, the US 10Y-2Y spread extended its decline by 14.98bps while the EU 10-2Y spread ended up by 1.2bps but remained volatile.
3/ The Gilt, the Pound and the BOE Intervention. Truss and Kwarteng tax cuts plan triggered a major sell-off on UK gilts which pressured the 30Y above 5% on September the 27th and the 28th. The BOE took emergency action to bought the longer-dated maturity and dragged the yield down below 4%. The GBPUSD hit an all-time low at 1.035 (red dotted line) on the 26th. The BOE action dragged the pound higher to 1.1096.
From a regional perspective, European equities were bought while US as well as International DM were sold. On the fixed income side, US treasuries recorded an important activity.