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

July 2025

Introduction

In 2025, Malta’s economy sustained its growth trajectory, albeit noting a marginal slowdown in household consumption (0.8% vs. 2.5% in Q4), and government spending (0.6% vs. 2.2%). On the trade side, both exports and imports grew, yet at a slower pace. In numbers, GDP expanded by 3.0% year-on-year (annualized) in the first quarter of 2025, slowing from an upwardly revised 3.1% increase in the previous three-month period, and marking the weakest economic growth since the third quarter of 2022.

Inflationary pressures on consumers eased, as the annual inflation rate inched down to 2.5% in June from 2.7% in May. Prices largely moderated for transport, miscellaneous goods and services, education, and health. In contrast, prices accelerated for alcoholic beverages and tobacco, as well as for restaurants and hotels, both likely boosted by increased tourism demand at the start of the summer season.

Market environment and performance

In the euro area, GDP growth slowed to 0.1% in Q2, down from 0.6% in Q1, per preliminary estimates. While slightly ahead of expectations for flat growth, the result marks the weakest pace since late 2023. The deceleration reflects a more cautious stance by businesses and consumers, who are weighing easing inflation and lower interest rates against rising trade-related uncertainty, particularly stemming from U.S. tariff policy.

Growth across the bloc was uneven. Spain (+0.7%) and France (+0.3%) posted solid gains, while Germany and Italy both contracted by 0.1%. The Netherlands managed a marginal 0.1% increase. The divergence highlights persistent structural imbalances and external vulnerabilities within the euro area.

Business activity showed modest improvement in July, with the HCOB Composite PMI rising to 51.0, its highest reading in 11 months, driven by strength in services and a less pessimistic tone in manufacturing. On the inflation front, headline CPI held steady at 2.0%, slightly above expectations and in line with the ECB’s target. While this supports the case for maintaining accommodative policy, external risks remain elevated, particularly from global trade dynamics and their potential spillover effects.

Fund performance

The CC Malta Government Bond Fund incurred a 0.29% loss in July, in line with a broader decline in yields across European government bonds.

Market and investment outlook

Fixed income markets have been grappling with persistent headwinds in recent months, as elevated inflation, rising geopolitical tensions, and shifting monetary policy expectations have weighed on investor sentiment. Sovereign bonds have been at the forefront of this volatility, underscoring heightened market sensitivity to these overlapping pressures.

In July, Eurozone bonds experienced pronounced swings. German yields climbed sharply. Notably the 30-year German Bund hit 3.26% in mid-July, the highest since October 2023, while the benchmark 10-year Bund climbed to around 2.74%, from 2.61% at end of June. This widening in yields reflected mounting concerns over increased issuance tied to expansive government spending plans. Malta’s yield curve mirrored the trend, recording a notable rise since late June.

Looking ahead, Malta’s economy is expected to remain robust through 2025. Inflation remains low despite more recent upticks, 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.