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

August 2025

Introduction

Malta’s economy grew by 2.7% year-on-year in Q2 2025, slowing from 3.0% in the previous quarter. This marked the weakest growth rate since the economic contraction in Q4 2020, driven largely by sharp slowdowns in household consumption (2.2% vs. 5.1%) and government spending (2.2% vs. 9.8%). On the trade front, imports of goods and services jumped, while exports also gained momentum.

Inflation held steady at 2.5% in July 2025, its lowest level since April. Prices moderated for food, non-alcoholic beverages, restaurants, hotels, and miscellaneous goods. Clothing and footwear prices fell 0.3%, while costs for housing, utilities, household maintenance, health, recreation, and transport rose at a faster pace, the latter likely boosted by increased tourism demand at the start of the summer season.

Market environment and performance

In the euro area, business activity continued to expand in August, with the Composite PMI rising to 51.1, up from 50.9 in July and above expectations of 50.7. Growth was driven by a third consecutive expansion in services (50.7 vs. 51) and a notable rebound in manufacturing (50.5 vs. 49.8), marking the first manufacturing growth in over three years. Aggregate new orders increased for the first time in 14 months, supporting a sixth consecutive month of job growth, even as new export orders fell.

Consumer price inflation in the Eurozone held steady at 2.0% year-on-year in July, matching the flash estimate and slightly above market expectations of 1.9%. This represents the second consecutive month in which inflation aligned with the ECB’s official target.

In the sovereign bond market, European government bond yields rose steadily throughout August, reflecting expectations that the ECB’s current interest rate policy is sufficiently accommodative. Concerns over fiscal expansion in Germany and the potential political showdown over fiscal policy in France further weighed on sentiment towards European government bonds.

Fund performance

The CC Malta Government Bond Fund saw a 0.18% gain in August, contrasting a broader decline in yields across European government bonds.

Market and investment outlook

Fixed income markets have faced ongoing challenges in recent months, driven by elevated inflation, geopolitical tensions, and shifting monetary policy expectations. Sovereign bonds have been particularly sensitive to these factors, leading to increased volatility.

In August, Eurozone bonds saw significant fluctuations. Germany’s upcoming fiscal expansion added further pressure on European government bonds, while political tensions over fiscal policy in France raised additional concerns. Notably, French yields widened, with the 10-year bond closing at 3.51%, a 16bps increase for the month, narrowing the yield gap between France and other higher-yielding peripheral European bonds.

Looking ahead, Malta’s economy is projected to remain strong through 2025, supported by low inflation, recent tax cuts, and an expected increase in tourist arrivals. These factors are likely to sustain domestic consumption and overall economic growth.

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.