Ivy Global Bond Fund

04.05.13

Market Sector Update

  • Powerful easing measures will help Japan exit 15 years of deflation. The Bank of Japan stated it will be buying about 7.4 trillion yen in Japanese Government Bonds, up from about 4 trillion that it is currently buying. It will increase the average maturity from 3 years to 7. It intends to increase its monetary base from 138 trillion yen at the end of last year to 200 trillion by the end of this year and 270 trillion by the end of next year.
  • Cyprus imposed capital controls to try to prevent capital flight from its banking system. Following the bank restructuring exercise in Cyprus and haircuts for large bank deposits and other liabilities, bank funding costs have risen in the European Union.
  • In the U.S., market participants are questioning when the Federal Open Market Committee (FOMC) will taper off its asset purchases. As of now, FOMC communications signal a strong desire to remain patient and let accommodative policy work to generate a stronger labor market recovery.
  • Tensions have risen on the Korean peninsula. The purpose of Pyongyang’s behavior is to maximize its leverage as it seeks to resume its bilateral discussions with Soul and the U.S.

Portfolio Strategy

  • We continue to seek opportunities to reduce the volatility in the Fund.
  • We are maintaining a low duration strategy for the Fund as it allows us a higher degree of certainty involving those companies in which we can invest.
  • We continue to focus on maintaining proper diversification for the Fund.
  • We look for opportunities to make longterm investments in foreign currencies in certain emerging markets should they weaken versus the Dollar.

Outlook

  • Given our expectation of slow growth in the developed world in 2013, we expect interest rates to remain low overall.
  • The Eurozone crisis is not over; it is merely changing its shape. What was once a banking crisis and sovereign debt crisis now seems to be an economic crisis as the entire region slips into a recession. The European Central Bank will need to ease policy further by taking the deposit rate into negative territory and potentially starting their own quantitative easing program.
  • A slowing economy means slowing corporate profitability. With corporate profits already at an all-time peak, we believe it will be very difficult to repeat the performance of the past two years. This means that equities should weaken in the months ahead, and corporate bond spreads should widen. However, there will be a lot of volatility in both of these markets and there will be no straight-line movement through year-end.
  • All of the uncertainty leads us to believe that we are in a benign environment for the U.S. dollar, in spite of the U.S. domestic problems. The U.S. continues to be a safe haven globally, and will continue to attract funds from outside the U.S. In this scenario, we will look for opportunities to make long-term investments in foreign currencies in certain emerging markets should they weaken versus the Dollar.

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2013. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

Risk Factors. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. International investing involves additional risks including currency f uctuations, political l or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.