Quarterly Fund Commentary

Ivy Global Bond Fund (prospectus)
June 30, 2010

Manager(s):
Dan Vrabac
Mark G. Beischel, CFA

Market Sector Update
Headlines during the past three months have focused on Southern Europe's fiscal problems, China's tightening efforts and the United State's interest rates. Europe's structural challenges should lead to slower growth there. The austerity programs announced in Greece, Spain, Portugal, Italy, and even Germany have lowered growth expectations to around 1 percent. An isolated sovereign problem has manifested into a potential banking crisis. China, meanwhile, has been enjoying its own business cycle. Inflationary pressures are building and the government has begun tightening with several hikes in the reserve ratios and controlling the pace of credit growth. Wage increases in manufacturing facilities have escalated the inflation argument. The perception of the Chinese exporting deflation is starting to change on the global scene. The government's intention to allow the currency to appreciate versus a basket of currencies is not surprising, as domestic conditions now appear more conducive to this policy plan. We think the U.S. economy is facing considerable economic slack but no immediate inflation threat. Additionally, the U.S. economy is witnessing the emergence of fiscal drag as the effect of the stimulus package tapers off. There is much less scope for either monetary or fiscal policy stimulus to counter a significant downturn in private spending should it materialize.

Portfolio Strategy
We think near-term inflation view is unlikely. Although we believe the Fed will be on hold for the remainder of 2010, we are increasingly concerned about the massive size of the budget deficit and the leveraging of the Fed's balance sheet due to its easy monetary policies. The government and the Fed need to provide the market with a credible action plan to get the deficits under control and a viable exit strategy from those policies. If those plans are not forthcoming in the near future, there could be upward pressure on medium-to-long-term interest rates and further downward pressure on the dollar. As for the Fund's strategies, we will continue to seek opportunities to reduce volatility in the Fund. We are maintaining a low duration strategy for the Fund as it allows us a higher degree of certainty involving the companies in which we can invest. The fate of the U.S. dollar is in the hands of U.S. authorities, but also is dependent on the rate of global growth. In this environment, the Fund will remain dollar neutral in the near term.

Outlook
The massive overleveraging of the U.S. consumer and financial sector is going to take time to unwind. We are maintaining a cautious outlook and investment policy. The unemployment situation in the United States is highly problematic. Coupled with the massive deleveraging and loss of wealth, any sustained recovery is not yet imminent. It is too early to judge the efficacy of current government programs, and the private sector is nowhere near serving as the catalyst for growth.