June saw volatility continue to dissipate, which bolstered the market’s demand for riskier assets. The VIX ended the month with a 13 handle and most major stock indices ended the month in positive territory.
21.07.2023 | 06:39 Uhr
Developed market yields were higher over the month, emerging market yields fell, and credit spreads tightened. Economic data continued to show resiliency, inflation numbers showed signs of turning over, and a general risk-on sentiment blanketed the market.
Developed market (DM) yields were broadly higher over the month as central banks continued to play catch up to their emerging market counterparts. The European Central Bank (ECB), Reserve Bank of Australia (RBA), Bank of Canada (BoC), Bank of England (BoE), and Norges Bank all hiked during their meetings. The Fed decided to pause its rate hiking cycle, which briefly signaled to the market that the end may be near. The reprieve was only short-lived, as hawkish rhetoric and the dot plot they released towards the end of the month signaled more hikes are coming soon.
On the EM side, June was a relatively positive month for returns in both the local and external markets. EM external and corporate spreads were largely tighter over the month and local debt performed well as the USD fell 1.4% vs a basket of currencies. Hungary began cutting rates and both Chile and Brazil signaled that they are ready to cut rates in the not-so-distant future as the countries have seen inflation begin to rollover.
Corporate credit spreads tightened over the month, with the US outperforming Europe, and high yield outperforming investment grade (IG). Most of the tightening can be attributed to the resilience of the US economy and tighter than expected labor markets. In the securitized space, current coupon spreads of agency MBS tightened 14 bps over the month, bringing year-to-date performance ahead of IG corporates and US Treasuries. Securitized credit spreads remained largely unchanged.