JKC Asia Bond 2025 – Fixed Maturity Fund August 2025 Update

• July was dominated by a sharp rebound in the USD although it had no detrimental impact on global risk assets as stocks and high beta credit continued to rally
• The US “One Big Beautiful Bill Act” (OBBBA) was finally signed into law on July 4th raising long term concerns about US fiscal position…
• …although USD shrugged off these concerns as an apparent market short squeeze drove the dollar index up 2.9% in July
• US monetary policy remained unchanged as the Fed held on rates at its July meeting while Powell began to cast some doubts about a September cut
• More US trade deals announced during the month saw new tariff levels appearing less onerous than first feared after “Liberation Day”
• Benign market conditions fueled further gains in Asian dollar bonds with the ADBI and AHBI indices climbing 0.46% and 1.20% respectively
• JKC Asia Bond 2025 portfolio (USD share class) advanced +0.16% for the month, largely driven by pull to par given the low beta positioning of the fund

Risk assets saw another month of strong gains in July as easing tariff concerns extended the rally in global equities and tightened high beta credit spreads in Europe and emerging markets. These gains came despite a sell-off in US Treasury bonds and a corresponding reversal of the USD weakness that had been a feature of much of the market’s rebound in Q2. Indeed, the dollar, as measured by the dollar index DXY, surged +3.19% in July bucking a downward trend that had been almost constant since early January. Although valid worries over the long-term viability of the USD have not entirely disappeared, particularly after the deficit widening new “OBBBA’ US fiscal bill was finally signed into law on July 4th, the crowded short dollar trade saw a technical pull back particularly at month end.

Notwithstanding this short squeeze, another reason for the sudden rebound in the USD and increase in US Treasury yields was signs that the Fed is not yet ready to resume interest rate cuts. In the July FOMC meeting the committee kept the policy rate unchanged, as expected, however chairman Powell’s language suggesting more time is needed to assess the position on the US economy in the uncertain tariff environment has called into question whether the central bank would even cut rates at its September meeting which has been a base case for the market for several months. Indeed, as July closed out, the futures market’s implied probability of a 25bps rate cut in September stood at 43%, well down from 70% previously. Meanwhile, on the subject of tariffs, policy continues to be chaotic and unpredictable, albeit with the latest tariff rates being set for most countries at a level well below those originally implied on Liberation Day. Furthermore, the impact of tariffs already in place has been apparently less stark than previously feared with little signs of significant supply chain disruption to the US consumer over the summer. This all feeds into a growing narrative that the US economy could potentially muddle through the tariff shock with limited negative upheaval.

Asian USD bond markets fed off the more positive risk sentiment with gains in both Investment Grade (IG) and High Yield (HY) markets. The IG heavy ADBI Index gained +0.46% while the HY AHBI Index climbed +1.20%. Driving the rally in Asian HY was a significant gain in Pakistan sovereign bonds which account for 6% of the HY Index and gained 5-10pts in July helped in part by a rating upgrade by S&P to B-. The JKC Asia Bond 2025 advanced by 0.16% in July reflecting the lower beta nature of the portfolio with an average maturity of just five months.

MONTHLY PERFORMANCE