Q3: Coronation Global Strategic USD Income Fund

This commentary is for the retail class of the fund.

PERFORMANCE

The third quarter of 2026 (Q3) was defined by the uncomfortable cohabitation of unexpectedly resilient global growth, revitalised inflationary pressures, and increasingly restrictive monetary policy. Resurgent Middle East tensions drove energy prices sharply higher, complicating the inflation outlook and reinforcing a hawkish repricing of global interest-rate expectations. Sovereign bond yields rose materially, with fiscal concerns and heavy debt issuance amplifying pressure on duration. The US dollar strengthened, particularly into September, while divergent regional growth and policy dynamics drove greater differentiation across currencies and emerging markets. Yet risk appetite proved remarkably resilient, supported by robust corporate fundamentals and investment connected to artificial intelligence (AI). Overall, however, this was a challenging period of adjustment for global fixed income investors: barring cash, there were few places to hide.

Against this backdrop, the Fund returned -0.18% for the quarter against the benchmark return of 1.04%.

During Q3, the US Federal Reserve (the Fed) turned more hawkish. The Federal Open Market Committee (FOMC) held rates at a range of 3.50% to 3.75% in July, with three members favouring an immediate hike, before raising the target range by 25 basis points (bps) to between 3.75% and 4.00% in September. The Fed continued to describe growth as solid and unemployment as stable, but persistent inflation and supply-side pressures kept policy risks skewed towards further tightening. September projections lifted 2026 gross domestic product (GDP) growth to 2.3%, lowered unemployment to 4.1%, raised headline and core personal consumption expenditures inflation to 3.7% and 3.4%, respectively, and moved the median year-end policy rate to 4.1%, implying scope for another hike. Markets increasingly priced further tightening, while political pressure intensified as President Trump continued to call for sharply lower rates, keeping Fed independence and Chair Kevin Warsh’s credibility in focus.

The Bank of England held its Bank Rate at 3.75% in both July and September, with three Monetary Policy Committee members voting to hike at each meeting; by September, markets had swung sharply hawkish, from pricing roughly one 25bps hike by year-end after the July meeting to almost four hikes over the following 12 months. The European Central Bank (ECB) paused at 2.25% in July, then hiked 25bps to 2.50% in September as the energy shock lifted the inflation path; pricing moved from around two further hikes by year-end in July to as many as four additional moves over the following year by quarter-end. The Bank of Japan held at 1.0% in July, with one dissenter already favouring 1.25%, then delivered a 25bps hike to 1.25% in September. That move was largely priced, while the 7–2 vote and cautious guidance subsequently pared expectations for an immediate follow-on hike. Monetary policy normalisation continues its slow grind in Japan.

US Treasury yields rose sharply over the third quarter, with the 10-year yield increasing by approximately 85bps to 5.29% and the 30-year yield by 73bps to 5.64%. The sell-off was relatively orderly through July and August, with the 10-year ending both months near 4.75%, before accelerating materially in September. The move was predominantly driven by higher real yields, reflecting a combination of resilient US activity, robust business and AI-related capital expenditure, heavy sovereign and corporate financing requirements, and a higher required term premium. Renewed Middle East tensions added to the sell-off as Brent crude moved back above US$100 per barrel, increasing headline inflation risks, while August consumer price index (CPI) inflation rose 3.4% year on year (y/y). Monetary policy expectations also shifted materially more hawkish. As discussed earlier, the Fed raised the funds rate by 25bps in September and lifted its projected 2026 policy rate path, reinforcing upward pressure on yields across the curve. Elsewhere in the G10, the rise in yields was broad-based: UK gilt and Japanese government bond (JGB) long-end yields also reached multi-decade highs, while euro-area government bonds sold off amid ECB tightening and fiscal concerns, broadly echoing the US move higher in long-term rates. France was under additional pressure, given more acute fiscal concerns and seemingly intractable politics.

US Treasury inflation-linked bonds (TIPS) sold off sharply over the period as real yields moved materially higher across the curve, with five-year real yields rising from 1.93% at end-June to 2.73% at end-September, and 10-year real yields increasing from 2.20% to 2.93%. Breakeven inflation rates widened only moderately over the quarter (five-year breakevens rose from 2.26% to 2.36% and 10-year breakevens from roughly 2.24% to 2.36%), despite temporarily moving higher as energy-driven inflation concerns intensified. Consequently, the bulk of the substantial rise in nominal Treasury yields was attributable to higher real yields rather than a sustained de-anchoring of longer-term inflation expectations.

Emerging market (EM) hard-currency sovereign debt weakened with the J.P. Morgan EMBI Global Diversified Index returning -3.9% in US dollars. The sell-off was driven primarily by sharply higher US Treasury yields. Sovereign spreads tightened from 235bps at end-Q2 to about 218bps by end-September, cushioning but not offsetting the rates shock. Investment-grade sovereigns underperformed the high-yield market (-4.6% vs -3.2%) given their longer duration. Argentina was a notable laggard as concerns around policy continuity increased. Higher oil prices also created divergence, with energy exporters relatively better insulated than import-dependent EMs, particularly in parts of Europe and Asia.

EM local currency debt also came under pressure. The J.P. Morgan GBI-EM Global Diversified Index returned approximately -0.9% in US dollar terms. Positive carry was more than offset by higher local and US yields and a late-quarter rebound in the dollar, particularly after the Fed’s September rate hike. Performance was highly dispersed: Turkey and Indonesia benefited from high carry and supportive local rate dynamics, while Colombia reversed sharply after July’s peso-led surge as fiscal concerns and weaker oil prices weighed. South Africa also proved volatile as higher oil prices pressured its inflation and monetary policy outlook. More broadly, elevated energy prices generally favoured exporters while creating inflation and external balance headwinds for fuel-importing EMs, echoing the relative pressures seen in the hard-currency space.

US investment-grade corporate bonds posted a weak quarter as the sharp rise in Treasury yields overwhelmed coupon income and relatively resilient credit fundamentals. The ICE BofA US Corporate Index fell approximately 3.8% on a total return basis, while its option-adjusted spread (OAS) widened modestly from 76bps at end-June to 84bps at end-September. The principal drag was duration amid persistent inflation concerns, fiscal supply and firmer expectations for real rates. Credit conditions remained comparatively orderly, with spreads still historically tight and the ICE BofA US Corporate Index yield ending the quarter near 6.0%. Heavy primary issuance was another defining feature, particularly from technology and borrowers funding investment in data centres. Technology represented about 27% of US investment-grade issuance by September. Strong demand continued to absorb supply, although hyperscaler bonds generally underperformed traditional financial and industrial issuers as investors demanded greater concessions for increasingly concentrated AI-related borrowing.

The US high-yield corporate bond market weakened in Q3, with the ICE BofA US High Yield Index returning -1.8%. The index OAS widened 37bps, from 275bps at end-June to 312bps at end-September, while the yield to worst (YTW) reached 8.3%, as rising Treasury yields and wider credit risk premia overwhelmed coupon carry. The principal headwinds were renewed Middle East tensions and higher energy prices, persistent inflation, heavy sovereign borrowing, and resilient US growth, which drove a sharp Treasury sell-off and prompted the Fed to raise rates and markets to reassess monetary policy expectations. High-yield credit nevertheless proved relatively resilient given its shorter duration and elevated starting income. Performance dispersion increased materially: single B credit held up comparatively well, while CCC (and lower) bonds fell approximately 3.6%, with spreads widening sharply to 1 179bps, highlighting growing refinancing and idiosyncratic credit risk at the weakest end of the market.

Global listed property reversed its strong first-half rally in Q3 as rising bond yields, renewed inflation pressure and geopolitical uncertainty compressed rate-sensitive valuations. The GPR 250 (Global Property Research) fell 5.8% in local-currency total-return terms (-5.5% in USD), with every region negative: Europe lagged at -8.3%, the Americas -6.2%, Asia -2.9%, Oceania -2.7%, and Africa -1.3%. US real estate investment trusts (REITs) also weakened materially: the FTSE Nareit All Equity REITs Index ended September at +3.7% year to date (YTD) versus +10.2% at mid-year; September alone fell 5.5% after the Fed raised rates and longer-dated yields ratcheted higher. Sector dispersion remained meaningful, with lodging/resorts still the strongest US sector year to date (+37.6%), followed by data centres (+28.0%) and specialty (+23.4%), while timberland, towers and gaming sold off sharply in September. Europe’s weakness was partly offset by mergers and acquisitions (M&A) support in UK logistics, although all the mid-quarter gains seen in Europe and the UK were heavily retracted by end-September. At the margin, political noise in the UK proved a headwind to property market activity over the quarter, as a wait-and-see approach took root in anticipation of the Budget Review.

FUND ACTIVITY

Individual security selection activity ensures that recycling across the Fund’s core holding of high-quality, short-dated corporate debt is an ongoing feature of the Fund at all times and in all environments.

By the end of Q2, the Fund had largely reduced the additional risk exposures accumulated in the immediate wake of the weakness and volatility induced by the crisis in the Middle East. Particularly across spread product markets (including nearly all EM debt asset classes), valuations had largely withered once again to extremely suppressed levels. This left the Fund deliberately under-exposed here, with a commensurate ability to accumulate market risk in other, more attractive, pastures. In particular, selected interest-rate and listed property opportunities continued to provide for interesting medium-term propositions.

Over the course of Q3, there continued to be more opportunities to release incrementally too expensive credit/spread exposures, while also very cautiously accumulating additional outright duration risk, at various tenors and across different markets. For the most part, this has been a very satisfactory endeavour. The Fund has been able to tolerably ease its prospective yield upwards without notching market risk unendurably higher. In the case of the Fund’s continued presence in TIPS, the protective optionality available in these securities remains very well priced relative to the same opportunity implicitly available from nominal Treasuries. The only downside in this process of shifting the Fund away from increasingly vulnerable spread assets and towards better value opportunities elsewhere is the occasionally explosive pace at which these transitions can occur. For instance, the move weaker across global rates markets in September was exceptional in its extent and reach across global markets. Naturally this creates lumpiness in very short-term performance, including that experienced by the Fund, even as it is not problematic for the Fund’s objectives. Indeed, with bouts of generalised, widespread and technical selling pressure, these often generate attractive occasions to accumulate oversold exposures at reasonable levels – to which the additional benefits can accrue to the Fund over a protracted period, albeit at a much more diluted pace than how these were originated.

With the sharp weakness across selected opportunity sets seen in Q3, particularly in September, the Fund has taken advantage to restock exposures that build and extend a favourable risk/reward profile for the quarters ahead. While further extreme flux in global fixed income markets may persist in the immediate weeks ahead, at the expense of short-term performance, this is a temporary cost of accumulating value as it arises, rather than attempting to do so on the cusp of its crystallisation.

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