High Income Bond Fund Distributor

The Fund aims to maximise the total level of return for investors by investing, mainly in a diversified portfolio of bonds and other similar debt securities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of corporate & government bonds maturing in the medium term, with an average credit quality of “BB-” by S&P, although individual bond holdings may have higher or lower ratings. The Fund can also invest up to 10% of its assets in Non-Rated bond issues.

The Fund is actively managed, not managed by reference to any index.

The Investment Manager of the CC High Income Bond Funds – EUR and USD has the duty to ensure that the underlying investments of the funds are well diversified. According to the prospectus, the investment manager has to abide by a number of investment restrictions to safeguard the value of the assets

• The fund may not invest more than 10% of its assets in securities listed by the same body
• The fund may not keep more than 10% of its assets on deposit with any one credit institution. This limit may be increased to 30% in respect of deposits with an Approved Institution
• The fund may not invest more than 20% of its assets in any other fund
• The fund may not carry out uncovered sales (naked short-selling) of securities or other financial instruments

April 2025

Introduction

April 2025 brought renewed volatility to the U.S. Treasury market, driven by sustained geopolitical tensions, persistent inflationary pressures, and shifting expectations around monetary policy.

The 10-year US Treasury yield exhibited pronounced intra-month movements, starting the month at around 4.17%, rising to a peak of 4.6% on April 11, and ultimately settling below 4.2% by month-end. This marked the largest weekly increase since 2001, spurred by newly imposed tariffs, their anticipated inflationary effects, and waning foreign demand for U.S. government debt.

The U.S. Treasury yield curve underwent a significant steepening in response to recent market developments. Short-term yields declined while long-term yields rose, as weak survey data reinforced expectations of slowing economic growth paired with persistent inflation. The two-year yield fell to 3.60%, dipping below the Federal Reserve’s effective funds rate of 4.33%, signalling market expectations of potential rate cuts. Meanwhile, the 30-year yield edged up to just under 4.6%, highlighting investor concerns around long-term fiscal concerns.

European sovereign debt outperformed, with yields declining (yields move inversely to prices). Notably, the German 10-year Bund yield ended the month 30bps lower, near 2.44%, as the European Central Bank (ECB) opted to cut its benchmark rates by 25bps, lowering the deposit facility rate to 2.25%. The ECB’s move underscored growing concerns about slowing euro area growth and a disinflationary trend considered to be “well on track.” Contributing factors included stronger euro currency performance, softer energy prices, and escalating U.S. tariffs. In contrast, the Federal Reserve held its target rate steady at 4.25%–4.50%, weighing slowing economic momentum against persistent inflation. Despite near-term inflationary risks, markets are now pricing in nearly four U.S. rate cuts by year-end.

In a turbulent rate environment, corporate credit markets demonstrated overall resilience despite notable fluctuations. Both investment-grade and high-yield segments held firm, signalling continued investor confidence in corporate creditworthiness. Euro-denominated credit outperformed US debt across the quality spectrum, with euro investment-grade returning 0.92% versus -0.02% in the US, and speculative-grade yielding 0.29% versus a flat return.

Market environment and performance

Concerns about potential headwinds facing the U.S. economy in early 2025 – driven by the effects of newly implemented tariffs and persistent inflation – were validated by a negative GDP reading for Q1. The U.S. economy contracted by 0.3%, marking its first quarterly decline since 2022 and a sharp reversal from the 2.4% expansion recorded in Q4 2024. The figure also came in well below market expectations, which had projected 0.3% growth. A key driver of the decline was a 41.3% spike in imports, as businesses and consumers accelerated purchases ahead of anticipated price increases from tariffs imposed by the Trump administration. This front-loading of demand significantly distorted the trade balance, dragging on headline GDP. However, the contraction may overstate underlying weakness, as the temporary import surge likely masked underlying economic resilience.

Encouragingly, consumer spending remained solid and business investment posted a strong gain, suggesting that domestic demand is still holding up. The full economic impact of the tariffs is expected to become more apparent in subsequent data releases.

Leading indicators point to a cooling in business activity. The S&P Global U.S. Composite PMI was revised down to 50.6 in April from a preliminary 51.2 and well below March’s 53.5, indicating the slowest expansion in the private sector since September 2023. While new business activity continued to grow, it did so modestly, and business confidence declined amid ongoing concerns about federal policy direction.

On the inflation front, pressures moderated. Headline inflation fell to 2.4% in March from 2.8%, while core inflation, which excludes volatile items such as energy and food, declined to 2.8% from 3.1%. Despite earlier signs of softening, the labour market remained resilient. Job growth exceeded expectations, and the unemployment rate held steady at 4.2%.

In the euro area, Q1 growth outperformed expectations, supported by strength in southern European economies. This momentum carried into April, with Composite PMI readings remaining in expansionary territory, albeit easing slightly to 50.4 from 50.9 in March, still above forecasts.

Inflation across the bloc remained stable, bolstering confidence that the disinflation process remains on track toward the ECB’s 2% medium-term target. The labour market also remained solid, with the unemployment rate at 6.2% in March, well below the 20-year average.

Fund performance

The CC High Income Bond Fund fell 0.17% in April. During the month, the portfolio manager continued to actively manage the fund in-line with its mandate, making progress on the strategy to gradually extend duration by increasing exposure to European assets while trimming holdings in dollar-denominated debt. This strategy reflects the European Central Bank’s advanced stage in its rate-cutting cycle, contrasting with the US Federal Reserve’s stance of holding rates steady, despite pressure from the new administration.  Seeking to boost income generation ahead of anticipated further easing, the manager increased the fund’s exposure to CMA CGM, Eircom, and Nidda Healthcare. Conversely, the fund decreased its holding in Lorca telecom.  

Market and investment outlook

April’s renewed volatility in the US Treasury market – primarily driven by escalating tariff uncertainty – prompted a significant shift in investor sentiment around growth, inflation, and monetary policy. The mid-month spike in yields, followed by a reversal, underscored the market’s heightened sensitivity to policy developments and macroeconomic data.

Looking ahead, fixed income markets are likely to remain reactive to the evolving effects of tariffs. The US Q1 GDP contraction, largely driven by a surge in imports ahead of expected price increases, appears more reflective of temporary distortions than a sustained downturn. However, the longer-term inflationary consequences, stemming from higher input costs and potential supply chain disruptions, could complicate the Federal Reserve’s policy trajectory. Should inflation remain elevated, the Fed may be forced to delay or moderate the pace of rate cuts currently anticipated by markets. At the same time, signs of moderating demand and slowing growth could support the case for eventual policy easing. The current shape of the yield curve – characterized by short-term yields below the Fed’s effective rate and a modest steepening at the long end – highlights market uncertainty, balancing short-term disinflation against longer-term fiscal risks.

On an economic front, the imposition of new tariffs – exacerbated by the US’s Liberation Day measures – further clouds the macro outlook and adds complexity to the yield curve’s path, as consumers grapple with rising prices and a resurgence in inflationary pressures.

In this context, duration positioning and selective credit exposure remain key. While volatility in core rates is likely to persist, credit markets are being supported by stable corporate fundamentals and resilient balance sheets. The interplay between a strong labour market and persistent inflation suggests a cautious, neutral stance on duration, particularly as yield curve dynamics remain uncertain.

We maintain our current preference, which leans towards European credit, underpinned by the prospects of continued monetary easing by the ECB. Nevertheless, the dynamic nature of the current environment, particularly the constantly evolving geopolitical tensions, require a highly proactive and adaptive management style to navigate potential risks and capitalize on emerging opportunities.