Unlike last year, bonds have not been performing well at all so far this year. Expectations of very strong growth of the world economy this year and next, strong inflationary pressures and inflation expectations, and still extremely loose monetary and fiscal policies have caused the Bloomberg Barclays Global Aggregate Bond index to be down at -3.8% so far this year.
Czech government bonds generally exactly copy this global development, as the index of Czech government bonds is at the level of -3.7% this year. At the same time, the entire yield curve of the Czech government bonds shifted upwards. The short end of the yield curve, for example, the yield to maturity of the Czech government bond with a short two-year maturity increased by 92 basis points or 0.92 percentage point to 1.06%. The long end of the yield curve, such as the yield to maturity of the Czech ten-year government bond, rose by 66 basis points, or 0.66 percentage point, to 1.96%.
Given that we anticipated this development, our investment portfolios were very well prepared for this negative bond scenario, through a significantly underweighted duration against benchmarks. It was with a significantly underweighted duration that we tried to protect our investment portfolios against interest rate risk, which has so far been fully realized this year. Thanks to the strongly defensive setting of our bond portfolios, for example, our main bond fund – Conseq Invest Bond Fund – so far this year even attributes a positive appreciation of 0.8%. The relative performance against the fund's benchmark is therefore very positive, which we also consider to be a great success of our active investment management approach.
Investment Strategist at Conseq Investment Management, a.s.