September 2023 Commentary
Q3 2023 ended with most global central banks keeping interest rates unchanged, as they strived to balance combating surging inflation and avoiding a recession. In line with market expectations, the U.S. Federal Reserve (Fed) took a pause on its interest rate hikes at the September Federal Open Market Committee (FOMC) meeting, as inflation appears to have slowed but still remains above its target of 2%. Among the few central banks that did not pause in September, the European Central Bank and Bank of Thailand surprised markets by announcing another rate hike in their respective economies.
The long end of the U.S. Treasuries market, as represented by the iBoxx $ Treasuries 10Y+, experienced its worst month this year, losing 7%, bringing its YTD loss to 7.72%. With an annual yield of 4.91%, this marked the first time since 2007 when the entire U.S. Treasury yield curve had risen above 4.5%. With the 10-year U.S. Treasury yield still regarded as the benchmark for global borrowing costs, concerns of debt refinancing and asset repricing weighed on equity markets, as the S&P 500® suffered its worst month this year with a 4.87% loss.
In China, the Real Estate sector continues to be in the limelight as China Evergrande returned to the headlines, spreading liquidation fears after its mainland China unit missed an onshore bond repayment. Other property developers, such as Country Garden, also looked to extend repayment deadlines by working on debt restructuring plans.
Mirroring last month’s trend, the overall index slipped by 0.93% in September, largely due to the investment grade segment’s -1.11% return. The high yield segment crept upward by 0.33% after two months of losses. The short-end maturity buckets largely gained this month, while the performance of investment grade and high yield segments diverged. The investment grade 10+ years racked up 5.63% of losses while high yield 10+ years moved in the reverse direction, gaining 4.12% for the month.
