• Official sector interventions: Throughout September, official sector interventions were deployed across the globe in an ad hoc manner. Policymakers attempted to deal with the fallout of a sharply higher rates complex and the associated strain on the plumbing of capital markets in Japan, China, Korea, Switzerland, and most spectacularly, the United Kingdom.
  
• Rate markets were positioned with a substantial short base built up across Treasury markets. We now see substantial short positions across the entire Treasury curve at levels that were last seen during 2018 at the start of the Fed-hiking cycle. The size of the short base and the violent sell-off in Treasuries are impacting the Treasury market's ability to function.
  
• US quantitative tightening hit peak runoff rate during the month (US$95 billion), though the Fed has yet to discuss outright mortgage-backed securities (MBS) sales.¹ Spreads on MBS have already widened significantly year-to-date, with the current coupon close to levels reached during the peak of COVID-19. 
  
• Global inflation data offered scant evidence of easing price pressures. UK inflation accelerated to 9.9% year-over-year through August, with the eurozone (9.1%) not far behind. The US Consumer Price Index² (8.3%) exceeded estimates, though it appears to have peaked, assuming stable gas prices.
  

• Developments in Russia/Ukraine point to an escalating conflict. 
  
• Treasury market dysfunction
  
• A lack of global coordination
  
• Italian election results indicate a comfortable majority for the center right/right bloc. 
  

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¹ A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments.

² The Consumer Price Index in the United States is defined by the Bureau of Labor Statistics as a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Important Risks: Investing involves risk, including the possible loss of principal. Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. • Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political, economic, and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets. • Mortgage-related and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. • Obligations of US Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the U.S. Government. • Diversification does not ensure a profit or protect against a loss in a declining market.

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