Malta Government Bond Fund

The Fund aims to maximise the total level of return for investors through investment, primarily, in debt securities and money market instruments issued by the Government of Malta. The Investment Manager may also invest directly or indirectly via eligible ETFs and/or eligible CISs) up to 15% of its assets in “Non-Maltese Assets” in debt securities and/or money market instruments issued or guaranteed by Governments of EU, EEA and OECD Member States other than Malta. The Investment Manager will not be targeting debt securities of any particular duration, coupon or credit rating.

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

April 2025

Introduction

In 2024, Malta’s economy sustained its growth trajectory, driven by strong domestic demand and solid export performance. Tourism arrivals to Malta remained on the rise, while employment stayed robust, with unemployment falling to 2.9%.

Malta’s economy grew by 2.8% (annualized) in the fourth quarter of 2024, slowing from a 4.9% gain in the previous three-month period. This marked the weakest expansion since Q1 of 2021, influenced by a slowdown in household consumption. At the same time, government spending (2.2% vs 1.4%) increased at a faster pace. On net external demand, exports remained unchanged while imports ticked lower.

Price pressures on consumers rose, with the annual inflation rising to 2.1% in March from 2.0% in the previous month. This marked the highest inflation rate since November 2024, as prices increased at a faster pace for food and non-alcoholic beverages, transport, clothing and footwear, and education.

Market environment and performance

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.

On the price front, across the bloc remained largely stable, bolstering confidence that the disinflation process remains on track toward the ECB’s 2% medium-term target. In April, annual inflation remained steady at 2.2 slightly exceeding market expectations of 2.1% and hovering just above the European Central Bank’s 2.0% target midpoint, according to a preliminary estimate. A sharper drop in energy prices (-3.5% vs. -1.0% in March) was offset by faster inflation in services (3.9% vs. 3.5%) and food, alcohol, and tobacco (3.0% vs. 2.9%).

The labour market, remained healthy, with the unemployment rate revolving at notable lows (6.2% in March), and significantly below the 20-year average.

From a policy perspective, 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.

Fund performance

The CC Malta Government Bond Fund gained 1.28% in April, reflecting the broader decline in yields across European government bonds.

Market and investment outlook

The credit market narrative that began the year – with a focus on political uncertainty and central bank policy – remained prominent into Q2. Political tensions escalated as former President Trump adopted a more aggressive stance on tariffs, though this was later moderated with a 90-day pause. Meanwhile, central bank policies diverged: the Federal Reserve kept rates steady amid persistent inflation and signs of slowing growth, while the ECB cut its benchmark rate by 25bps to 2.25%, citing weakening euro area growth and a disinflation trend supported by a stronger euro, lower energy prices, and rising U.S. tariffs.

These monetary shifts led to divergence in bond markets, with European sovereign debt outperforming as yields tightened significantly. Malta’s yield curve followed suit, particularly on the long end, which saw a marked decline.

Looking ahead, Malta’s economy is expected to remain robust through 2025. Inflation remains low despite a slight uptick, and recent tax cuts are likely to support domestic consumption. The anticipated rise in tourist arrivals heading into peak season also bodes well for continued economic momentum.

In response to these developments, we will continue adjusting the portfolio’s duration as appropriate and maintain exposure to European sovereigns, utilizing the allowable 15% allocation.