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

June 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 intensified, as the annual inflation rate climbed to 2.7% in May from 2.6% in April, the highest level since March 2024. This rise was largely driven by accelerated price increases in food and non-alcoholic beverages, miscellaneous goods and services, and restaurants and hotels.

Market environment and performance

In the euro area, economic performance surprised to the upside. Q1 2025 GDP was revised up to 0.6%, double the initial estimate of 0.3%, marking the strongest quarterly expansion since Q3 2022. The revision was driven by exceptional growth in Ireland and stronger-than-expected results from Germany and Spain.

Forward-looking indicators, however, pointed to more muted momentum. The HCOB Eurozone Composite PMI held steady at 50.2 in June, unchanged from the prior month and just below the 50.5 flash estimate, indicating ongoing but subdued expansion. This marked the sixth consecutive month above the 50.0 expansion threshold. Services sector activity stagnated, while manufacturing – albeit consistently improving – signaled a slight downturn in manufacturing conditions.

Euro area Inflation across the bloc also moderated, with May data showing a decline to 1.9%, an eight-month low and below the ECB’s 2.0% medium-term target. The decline reinforced market confidence that the disinflationary trend is intact.

Fund performance

The CC Malta Government Bond Fund gained a marginal 0.07% in June, despite a 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 continued to ease policy, with weakening euro area growth, a sustained disinflation trend supported by a stronger euro, lower energy prices, and rising U.S. tariffs, at the backdrop of such policy decisions.

These monetary policy shifts contributed to a divergence in bond market performance, with European sovereign debt outperforming as yields broadly tightened throughout Q2—despite a late-month reversal that was not enough to offset earlier gains. Malta’s yield curve followed suit, particularly on the long end, which saw a marked decline since the end of Q1 2025.

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.