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Strategic Global Income Fund, Inc. (the "Fund") (NYSE: SGL) is a non-diversified, closed-end management investment company seeking a high level of current income as a primary objective and capital appreciation as a secondary objective through investments in US and foreign debt securities.
Fund Commentary for the third quarter of 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
Risk aversion, which was elevated at times during the second quarter, was largely replaced with robust risk appetite during the third quarter. Economic fundamentals in most developed countries remained weak, while numerous macro issues, including the ongoing European sovereign debt crisis, remained. Nevertheless, these headwinds were largely overshadowed by announcements of additional quantitative easing by central banks around the globe, including the US Federal Reserve Board (Fed), the European Central Bank and the Bank of Japan.
The US spread sectors (non-US Treasury fixed income securities) generated strong results during the third quarter and outperformed equal duration Treasuries. The overall US bond market, as measured by the Barclays US Aggregate Index, returned 1.58% during the third quarter. Risk taking was rewarded during the quarter, as lower rated high yield bonds generated superior results. Also posting strong returns were investment grade corporate bonds, commercial mortgage-backed securities (CMBS) and mortgage-backed securities (MBS). More modest gains were registered by government agencies and asset-backed securities.
The emerging markets asset class generated strong results during the third quarter. US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of 6.76% over the period. Local market investments (that is, investments denominated in the local emerging markets currency) also rallied during the quarter, returning 4.80%, based on the JP Morgan GBI-EM Global Diversified Index.
As discussed, the high yield bond market posted positive results during the quarter, with the BofA Merrill Lynch US High Yield Cash Pay Constrained Index gaining 4.58%. Supporting high yield bond prices were solid corporate fundamentals, continued low defaults and strong demand from investors seeking to generate incremental yield in the low interest rate environment. From a ratings perspective, better-quality rating categories broadly underperformed lower-quality rating categories, with the BB- and B-rated segments lagging the CCC- and below-rated segments.