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Strategic Global Income Fund, Inc. a" Fund Commentary

^{Published on 2010-06-30 14:15:43 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--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 month of May 2010 from UBS Global Asset Management (Americas) Inc. (aUBS Global AMa), the Funda™s investment advisor

Market Review

The strength in government bond markets and weakness in risk assets that began in the last week of April, as European sovereign debt concerns escalated, continued to gather pace through May. Contagion fears from Greece to Portugal and Spain and the broader banking system led the European Union (EU) and the International Monetary Fund (IMF) to unveil a massive euro bailout package. The fear that the European crisis and subsequent austerity measures would lead to a derailing of the global economic recovery helped to create a dramatic increase in risk aversion and a significant drop in yields across developed markets. Credit spreads rose sharply across all sectors. Developments in financial markets in May have the potential to dent both business and consumer confidence and impact the economic recovery. Economic data over the coming months will be closely monitored to determine any real economic impact from the recent market volatility or whether this has been just a temporary financial market stress.

Sector Overview

In May, US Treasuries rallied strongly, in response to the heightened global risk aversion. Yields at the longer end of the US Treasury curve moved sharply lower throughout the month of May as did shorter-term yields.

Spreads of US dollar (USD) denominated emerging market (EM) bonds widened in May. (aSpreadsa refer to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.) From a regional USD debt perspective, Latin America was hit the hardest by spread widening, while Asia clearly outperformed the rest of the market. Local markets were weaker in May as well and posted a negative return of 4.34%. (aLocal marketsa refers to debt denominated in a local currency other than the USD.) While local market exposure was stable overall, currencies depreciated and offset the positive contribution from higher local yields for the month. ¹

In May, high yield markets gave up a considerable amount of gains seen since the beginning of the year. While the overall performance was strongly negative, BB-rated issues outperformed the falling market, while CCC-rated issues underperformed. Defaults continued to decline in May, while corporate earnings remained robust.

Within the securitized debt space, we continue to see signs of improving relative valuations for agency mortgage-backed securities (MBS), largely in response to the end of the Federal Reservea™s (the aFeda) mortgage purchase program. Commercial mortgage-backed securities (CMBS) were negatively impacted by the heighted risk aversion during the month of May although the technical characteristics of the market remain relatively favorable.

Performance Review

The Fund underperformed the Strategic Global Benchmark (the aBenchmarka)² on a net asset value return basis in May, mainly due to spread widening in all areas of fixed income credits and in depreciating currencies against the USD.

Positions in CMBS and corporate debt as well as in emerging markets countries detracted from performance over the month as spreads widened. Some of the Funda™s currency positions also detracted from results, as the USD saw a significant appreciation due to the flight to quality. Other developed markets currencies such as the Australian dollar, Norwegian krone and Swedish kronor, as well as emerging markets currencies including the Brazilian real, Mexican peso and Russian ruble, posted negative returns in May. The negative currency performance was offset by the Funda™s short position in the euro, which added a significant value to the portfolio.

Outlook

Concerns regarding a global economic slowdown and an uneven recovery have led to increased volatility in the financial markets. The key issue will be the impact, if any, of the financial market's recent decline on the global economy. It seems highly likely that banks will turn more cautious in Europe in light of recent events but it remains to be seen what impact this stance will have on global markets.

We continue to have a positive long-term outlook for the spread sectors (non-US Treasury debt). Volatility may continue in the near-term, given the situation in Greece and financial issues within the Euro zone. However, we believe that the fundamentals in the credit and emerging debt markets will remain supportive for spread tightening as the year progresses. We also feel that demand for these securities will increase given investors' search for higher yields.

We also remain positive on the opportunities in the local currency markets. The recent weakness we have seen in this area was largely the result of widespread investor risk aversion, not the deterioration of economic fundamentals in those countries. As the uncertainties in Europe lift, we feel that investors will again focus on the relatively strong economic backdrop in these countries, which could benefit their currencies.

Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the month noted.Views and opinions were current as of the date of this press release.They are not guarantees of performance or investment results and should not be taken as investment advice.Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time.As a result, the views expressed should not be relied upon as a forecast of the Funda™s future investment intent.

¹ As measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified Index.

² The Strategic Global Benchmark is an unmanaged index compiled by the advisor, constructed as follows: 67% Citigroup World Government Bond Index (WGBI)^SM and 33% JPMorgan Emerging Markets Bond Index Global (EMBI Global). Investors should note that indices do not reflect the deduction of fees, expenses or taxes.