∑ Financial markets were weaker in March as yields on US treasury bonds breached the 4.5% level for the first time since the summer of last year
∑ The Federal Reserve lifted its primary interest rate to 2.75% at its last meeting and noted that inflation pressures have been picking up
∑ The weakness in High Yield was fairly broad-based, although lower quality names and the auto sector underperformed
∑ Looking forward, Standard's strategy remains unchanged with a bias to a more conservative positioning
Commenting on the market, John Cleary, CIO, Standard Asset Management, said:
"Financial markets were weaker in March as yields on U.S. treasury bonds breached the 4.5% level for the first time since the summer of last year. This coupled with concerns that large automaker General Motors could be downgraded to below investment grade resulted in prices falling in both emerging market and high yield debt.
The U.S.'s Federal Reserve lifted its primary interest rate to 2.75% at its last meeting and noted that U.S. inflation pressures have been picking up. A government report issued a day later noted that consumer prices has risen 0.4% in February, the most in four months. The oil price has remained stubbornly above $50 a barrel for some time and market participants are fearful that this, combined with prolonged low interest rates around the world, will ultimately feed into higher levels of inflation.
Consequently most eyes over the month were on events outside emerging markets. However in country specific news, Venezuelan president Hugo Chavez forged ahead with more radical economic policies such as enforced land nationalisation, capping foreign exchange reserves, and selling some state-owned oil businesses.
In Mexico the central bank continued to tighten monetary policy, citing inflation risks and higher US interest rates. Nevertheless the peso fell around a percent during the month, affected by global risk appetite.
In terms of overall strategy, our portfolios remain relatively defensive and we have trimmed positions in hard currency bonds and are retaining our hedges on local currency positions where relevant for the time being."
Commenting on the high yield market, Kam Tugnait, Head of High Yield at Standard Asset Management said:
"Rising treasury yields and weaker equities put pressure on the market, with European High Yield benchmarks finishing the month down by around 1.5%. The weakness was fairly broad-based, although lower quality names and the auto sector underperformed.
The fundamentals for High Yield remain largely intact and March's volatility was generated by factors outside of the market. Looking forward, our strategy remains unchanged with a bias to a more conservative positioning."