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Fixed Income Commentary: As at June 30, 2022

Source: Phil Mesman, CFA | Sam Acton, CFA
Publish Date: Jul 6, 2022
Read Time: 3 minutes
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In Q2, the Picton Mahoney Fortified Income Fund (Class F) returned -4.53% and the Picton Mahoney Fortified Income Alternative Fund (Class F) returned -3.66% outperforming the blended benchmark composed of 75% ICE BofAML Global High Yield Index / 25% ICE BofAML Global Corporate Index (TR) (Hedged to CAD). Defensive positioning and portfolio hedging primarily drove the outperformance in the quarter.

During the second quarter, we saw the U.S. Federal Reserve (the Fed) continue its hawkish tone in response to high inflation with a 50 bps rate hike in May and a 75 bps rate hike in June. With economic data broadly coming in weaker than expected, markets began pricing in a higher probability of a recession with the S&P 500 Index down 16.11%, the ICE BofA US Corporate Index down 6.71%, and the ICE BofA US High Yield Index down 9.97%2.

Government bonds were incredibly volatile during the quarter as aggressive monetary policy pushed yields higher while slowing economic growth helped to pull yields lower toward the end of June. The US 10-Year Treasury Note traded in a range of 119 bps during the quarter ultimately ending 67 bps higher2.

We did start to see some encouraging signs of inflation rolling over with commodities and breakeven inflations falling during the quarter, supply chains normalizing, and some pockets of goods deflation given excessive inventory buildup. However, we believe the Fed will stay firm with its policy until they see clear evidence of declines in Consumer Price Index and Personal Consumption Expenditure.

With yields on corporate bonds approaching March 2020 levels and trading at the high end of the range since 2009, we believe this is a compelling opportunity to buy high quality credit. However, given the economic and geopolitical uncertainty, we believe it is critical to maintain our shorts and hedges as we navigate the second half of 2022.
Picton Mahoney Fixed Income Fund (Cl. F) and Picton Mahoney Fixed Income Alternative Fund (Cl. F) performance chart as of June 2022
This material has been published by Picton Mahoney Asset Management (“PMAM”) on July 6, 2022. It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction. The information contained in this material has been obtained from sources believed reliable, however, the accuracy and/or completeness of the information is not guaranteed by PMAM, nor does PMAM assume any responsibility or liability whatsoever. All investments involve risk and may lose value.

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