Ivy Global Bond Fund

Ivy Global Bond Fund

Market Sector Update

  • In December, the Federal Open Market Committee (FOMC) raised its policy rate 25 basis points to 2.50% and stated it is now in a wait-and-see mode, relying on incoming data to justify further tightening. The Committee met its dual mandate with the unemployment rate at 3.9% and core inflation approaching the U.S. Federal Reserve's (Fed) 2% inflation target.
  • The quarter witnessed tightening of financial conditions with credit spreads widening, stock prices decreasing and the compression of the yield curve.
  • U.S. growth forecasts have been revised down to 2%-2.5% for 2019, though the likelihood of a recession remains low and a noteworthy economic downturn is not expected in the next 12 months.
  • The Trump Administration’s policies regarding international trade and investment have emerged as an important source of downside risk for the global economy. Having completed a revamp of the North American Free Trade Agreement (NAFTA), President Trump will use the U.S.-Mexico-Canada Agreement (USMCA) framework for negotiations with the European Union (EU) and Japan. Negotiations with China will resume during the first quarter of 2019 but nothing material is expected.
  • Political concerns emerged from elections as Italy’s new government brought the EU’s sustainability back into the spotlight. The new government’s targeted budget deficit was more aggressive than market expectations which resulted in the euro weakening and Italian government rates increasing.
  • The shape of the yield curve should continue to remain flat with the FOMC’s intention of raising short-term rates and measured inflationary pressures on the long end of the curve. The long end of the curve is also being affected by the push (increased Treasury supply from budget deficits, Fed balance sheet normalization and increased term premium) and the pull forces (global trade concerns, the strong U.S. dollar, political concerns and emerging-market volatility).

Portfolio Strategy

  • The Fund outperformed its benchmark and peer group average for the quarter primarily due to its overweight allocation to U.S. Treasuries and U.S. dollar corporates. The recent risk-off environment led to a rally in U.S. Treasuries, while trade tensions initiated from the Trump Administration as well as EU political concerns stemming from the Italian elections, led to a rush for U.S. dollar assets.
  • The U.S. dollar strengthened over the quarter against the British pound and euro by 2.1% and 1.1%, respectively, while depreciated relative to the yen by 3.6%. The Fund’s 97% U.S. dollar exposure benefitted performance relative to its Lipper peers.
  • We continue to seek opportunities to reduce volatility in the Fund. Additionally, we are maintaining a low duration strategy for the Fund as we feel 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 continue to hold a higher level of liquidity (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when we believe dislocations in market arise.


  • On the back of lower growth in the first half of 2019, we believe the FOMC will raise rates no more than once this year.
  • Labor markets continue to grow and beat expectations, which has kept consumer confidence near cycle highs and supported strong spending growth.
  • Trade will continue to be a risk factor going forward. There is the potential for more tariffs, followed by retaliatory action that might impact company’s capital investment plans. A negative feedback loop might impact markets, stocks and ultimately consumer confidence.
  • U.S. growth is still above trend with healthy real income growth and an elevated personal savings rate that we believe should insulate against the negative wealth affect from the lower stock market experienced during the quarter.
  • The balance sheet runoff has proceeded smoothly and has not been disruptive to the markets. The FOMC reiterated its intension to use interest policy rather than the balance sheet as its active pool. We expect the balance sheet to runoff until it reaches $3.0-$3.5 trillion.
  • The federal budget deficit is expected to rise to $1.0 trillion (4.7% GDP) in 2019 from structural forces which have deteriorated by a much greater amount than the offsetting cyclical improvement.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Dec. 31, 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. International investing involves additional risks including currency fluctuations, political 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. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Fund’s prospectus. Not all funds or classes may be offered at all broker/dealers.