We have had ECB’s dovish take on events and now await the Federal Reserve, which we expect to remain similarly dovish, but to start talking about when they might start to talk about tapering. That will be the real test and likely to be a feature of Q4.

We saw a couple of opportunities in the bond markets via new issues in the primary market. CPPIB (Canadian Pension Plan Investment Board) came to market with a new sterling floating rate note, this allowed us to switch out of the same issuer’s fixed rate 2029 issue (reducing our duration without changing the credit exposure). We also purchased a new fixed issue from Natwest Group, due in 2031, we sold an equivalent higher coupon issue of theirs to fund the purchase. Overall, the Asset Mix table, see chart, right, shows that the AAA-rated FRN exposure is back to being larger than the ordinary fixed interest exposure, overall duration had edged-down again to 2.5.

Other transactions included an addition to our property exposure in European logistics warehousing, but this transaction did not alter the decimal point above. We also continued to reduce our UK and international smaller companies’ equity exposure, hence the equity exposure edging down again.

US inflation at 5% equals starkly negative real interest rates, I hope these central banks are right about its temporary nature. It seems unlikely that the Federal Reserve will make a move until the employment picture improves quite markedly. Meanwhile, the European Commission (!) has a heck of a lot of bonds to sell to fund their pandemic recovery fund, so it’s just as well that there appears to be so much appetite for these miserable returns.