Concerns over inflation, as well as the resultant monetary policy tightening continued to mount over the month. Market sentiment was further hit as hopes over a potential monetary policy pivot were dashed. Over September, fixed income indices continued the slide, with the Bloomberg Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds losing 5.14%, 5.26%, 3.97%, and 5.53% respectively.

Global inflation remain elevated, although energy prices have slightly eased, core inflation across major economies barring China remained on the rise. Labour markets were tight and wage pressures are high, the economy risks entering a wage-price spiral. In response to the situation at hand, global central banks have tightened monetary policies at the fastest pace in recent decades. Furthermore, central bank officials have repeatedly emphasised that tightening will continue until inflation returns to the target level. With elevated interest rate risks in the short term, our neutral view on duration remains unchanged.

Other than interest rates, the economy itself is also worrying. As a result of the high inflation and rapidly tightening monetary policy, major economies are expected to enter recession as early as Q4 this year. Credit quality is the priority in this environment, minimise exposure to high yield bonds, and replacing them with investment grade ones. Consider pockets of opportunities in high quality bond issuers such as the heavily regulated financials, particularly the ones with both lower duration and lower seniority, which can offer attractive yields in excess of 6% annualised.