In November, US interest rate markets experienced a slight upward trend due to potential changes in customs and immigration policies that could impact monetary policy direction. The two-year US Treasury yield decreased from 4.16% to 4.13%, while the ten-year Treasury yield declined from 4.28% to 4.18%. This movement in yields reflects a broader market sentiment as investors adjust their expectations based on evolving economic indicators and political developments.
The Barclays US Corporate Investment Grade Index saw a notable gain of 1.34%, driven by spread tightening associated with a rally across risk assets. Similarly, the Barclays US Corporate High Yield Index rose by 1.15%, with results bolstered by carry income and spread compression. These trends indicate a strong performance in the corporate bond market, suggesting investor confidence in credit quality despite fluctuating interest rates.
Commodity prices faced headwinds in November, with gold prices declining by 3.21% and crude oil prices easing by 1.82%. This downturn in commodities reflects broader market dynamics and investor sentiment, as concerns over economic growth and inflation continue to shape market expectations. The decline in gold suggests a shift in investor focus towards riskier assets amid a more optimistic outlook for equities.
In the currency markets, the Euro depreciated by 2.82% against the US dollar, while the US dollar weakened by 1.39% against the Japanese Yen. These currency fluctuations highlight the ongoing volatility in foreign exchange markets, influenced by geopolitical developments and central bank policies.
US Equity Hedged strategies reported positive returns in November, benefiting from a strong month for market beta and overall long/short results. Manager performance across the board was largely favorable, with only a few exceptions in the healthcare and energy subsectors. The trend of positive alpha generation continued, primarily driven by long positions, as the market exhibited a risk-on sentiment.
European Equity Hedged strategies also produced positive returns, although overall results were more muted in line with market indices. Long/short managers generated alpha, particularly from momentum and industrials, while exposure to France detracted from performance. The most net sold sectors included industrials and energy, while materials and financials saw increased buying interest, reflecting shifting investor preferences in the European market landscape.
Asian Equity Hedged strategies mirrored the positive performance seen in other regions, with returns primarily driven by exposures in the US and short positions in China. The Japanese market experienced volatility, initially buoyed by solid economic data but later weakened due to concerns over potential tariffs and a strengthening Yen. In China, market sentiment remained mixed, with disappointment over policy direction focused on de-risking rather than stimulating growth, despite domestic investors holding optimistic expectations for increased stimulus.
Fixed income relative value strategies generally yielded positive returns in November, driven by macro directional and short-term interest rate trading strategies. Despite some volatility in German swap spreads and European country spreads, core micro-relative value strategies remained positive for most managers. This performance reflects a resilient fixed income landscape, where strategic positioning can capitalize on market inefficiencies.
Capital structure and volatility arbitrage strategies also fared well, particularly within the convertible bond space, which benefited from a strong representation of digital assets-related issuers. The convertible bond market saw robust issuance, with USD 11.5 billion priced, indicating strong demand and investor interest in this asset class. The positive performance in this sector highlights the ongoing evolution of investment strategies in response to market conditions.
Quantitative equity strategies produced generally positive returns, driven by systematic long/short cohorts and gains from long/short spreads. This performance reflects the increasing reliance on data-driven approaches in navigating market complexities. In the credit markets, corporate credit strategies also reported positive returns, with long investments generating gains, although short portfolios offset some of these profits.
Asset-backed strategies (ABS) similarly performed well, driven by interest income and positive total returns across select asset classes. The resilience of these strategies amidst fluctuating market conditions underscores the importance of diversification and strategic asset allocation in achieving favorable outcomes in the current financial landscape. Overall, the financial markets in November showcased a blend of resilience and volatility, with various strategies adapting to the evolving economic environment and investor sentiment.