The performance of credit markets was mixed over the month, with the US underperforming the European market in both investment grade and high yield.
European high yield performed well, with both positive total returns and excess returns over government bonds, while total returns were negative in the US.
Investment-grade bonds are the highest quality bonds as determined by a credit rating agency; high-yield bonds are more speculative, with a credit rating below investment grade.
With the weakening global backdrop the dollar performed well against all G10 currencies. The Swedish krona was the notable underperformer, driven by very weak activity data.
Convertible bonds, as measured by the Refinitiv Global Focus Index, broke away from the negative stock market trend and finished the month with a slight gain of 0.2 per cent, although valuations continue to reflect the risk-off market mood.
Commodities
The S&P GSCI Index recorded a negative performance in May with all components of the index ending the month in negative territory.
Energy was the worst-performing component of the index in May, with sharp falls in the price of natural gas and crude oil.
Within industrial metals, nickel and zinc prices were sharply lower in the month, while price falls for aluminium, copper and lead were more muted.
In agriculture, weaker prices for soybeans, sugar and coffee offset modest price gains for cocoa, cotton and corn.
Within livestock, a significant fall in the price of lean hogs offset more modest gains in the price of feeder cattle and live cattle.
In precious metals, silver and gold both ended the month in negative territory.
Digital assets
Trends in the digital asset space very often start in the largest and most liquid tokens, specifically bitcoin. As the trend matures, profits are taken and allocated into more risky assets such as ethereum, followed by other smaller tokens.
After exceptional year-to-date performance, this 'catch-up' phenomenon was clearly seen in May, which saw ethereum almost flat on the month (-0.5 per cent) while bitcoin was down 7.2 per cent.
A number of idiosyncratic factors further contributed to this outperformance.
May was the first full month after the ethereum 'Shapella' upgrade, where users can now easily stake and un-stake their ethereum, causing demand to increase.
A resurgence of activity on NFTs (non-fungible tokens) also contributed to this increased demand. This has led to growing staking yields (8.0 per cent a year) and a more deflationary path for the ethereum token (-1.4 per cent annualised rate in May).
The correlation of bitcoin and other digital assets to macro events/risk assets has fallen this year after excess liquidity and leverage was removed from the market during 2022.
