In August, financial market dynamics were driven by three main factors: ongoing tensions between the United States and Iran and their impact on energy markets, the hawkish stance adopted by the new Federal Reserve leadership at Jackson Hole, and the broad-based increase in government bond yields.

Bonds

Global sovereign bond markets experienced a broad sell-off as investors reassessed the outlook for inflation and monetary policy. The more hawkish rhetoric from the new Federal Reserve leadership at Jackson Hole, together with persistent geopolitical tensions and elevated energy prices, led to higher bond yields in the U.S., Europe, the U.K., and Japan.

Emerging market sovereign bonds also weakened, while corporate bonds were relatively more resilient, and high-yield bonds outperformed government bonds.

In Armenia, driven mainly by excess liquidity in the banking system, the yield curve on Armenian government bonds shifted downward across its entire length, with long-term yields declining more noticeably than short and medium-term yields.

Given market conditions and our expectations, we increased the allocation to deposits in the local market from 29.6% to 30.0%.

FX Market

Armenia continues to be affected by significant foreign currency inflows. In this environment, despite the Central Bank of Armenia’s periodic foreign exchange purchases, the Armenian dram continued to appreciate against the U.S. dollar, strengthening by 0.5%.

At the same time, the dram depreciated by 0.4% against the euro and 0.25% against the British pound, reflecting the weakening of the U.S. dollar in international FX markets during the month.

The decline in the share of foreign currency assets in the fund, from 25.1% to 24.6%, was driven by cash inflows and market developments.

In August, the fund returned 0.75%. The largest positive contribution to performance came from Armenian government bonds and deposits, followed by Armenian corporate bonds, while foreign bonds had a negative impact on performance.