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

May 2026

Introduction

Malta’s economy expanded by 3.9% year-on-year in the first quarter of 2026, slowing from an upwardly revised 6.5% in the previous quarter. Despite this moderation, growth continued to significantly outperform the Eurozone, where GDP rose by just 0.8% year-on-year. The region’s largest economy, Germany, grew by 0.3%, down from 0.4% in the prior period, while growth also slowed in France, Italy, the Netherlands, and Belgium. Among major economies, growth accelerated in Spain and Portugal.

Meanwhile, Malta’s annual inflation rate rose to 3.2% in May from 3.0% in the previous month, marking the highest level since September 2023. The increase was driven by supply constraints linked to the Middle East conflict. Prices also accelerated in services and non-energy industrial goods, while inflation eased for food, alcohol, and tobacco.

Market environment and performance

In the Eurozone, economic activity weakened amid spillover effects from Middle East tensions. Q1 2026 growth slowed to its weakest pace since Q2 2024, while the S&P Global Eurozone Composite PMI fell into contraction territory. Forward-looking indicators also pointed to a weakening outlook, with the S&P Global Eurozone Composite PMI declining to 47.5 in May from 48.8, marking the sharpest contraction in private-sector activity since October 2023. The decline was driven by services, which fell at their fastest rate in over five years, while manufacturing remained relatively resilient despite slowing. Input costs rose at the fastest pace in three years, prompting firms to raise prices, eroding purchasing power. As a result, employment fell for a fifth consecutive month and business sentiment weakened further.

Consumer price inflation rose to 3.2% in May, up from 3.0% in April and matching market expectations, according to a preliminary estimate. This marked the highest reading since September 2023 and the third consecutive month in which inflation has exceeded the ECB’s 2% target, as energy costs soared 10.9%.

On the policy front, a number of ECB members viewed the April decision to keep rates unchanged as a close call and indicated they would have supported a rate hike had it been proposed, according to the latest ECB meeting minutes. Policymakers cautioned that the energy-led supply shock was proving more persistent than initially anticipated, heightening the risk of broader and more entrenched inflationary pressures. At the same time, the conflict in the Middle East was identified as a significant source of uncertainty for both inflation and growth. Members also highlighted the increasingly difficult policy trade-off, with slowing economic activity and weakening confidence occurring alongside elevated inflation risks.

Fund performance

The CC Malta Government Bond Fund saw a 0.70% gain in the month of May.

Market and investment outlook

Benchmark yields were in recent months driven by developments in the Middle East, alongside economic data releases and central bank policy signals. Inflation accelerated notably, while leading indicators pointed to a sustained contraction in business activity, reflecting the impact of higher energy costs and ongoing supply disruptions on the real economy.

However, cautious optimism surrounding a potential U.S.-Iran agreement helped alleviate inflation concerns and supported demand for government bonds in May. As a result, European sovereign yields generally moved lower, with the German 10-year Bund ending the month at 2.94%, down 10bps from previous month-end. Yields in France, Italy, Spain, and Portugal also declined, with the tightening exceeding that observed in Germany.

Looking ahead, the outlook remains uncertain. While diplomatic efforts have gained momentum, energy prices – although off their recent highs – remain volatile and elevated relative to pre-conflict levels, as energy flows through the Strait of Hormuz continue to face constraints. The broader economic impact will depend largely on the duration and evolution of the conflict. A return to normalised energy markets remains particularly important for Europe, given its reliance on imported energy. Persistently elevated energy prices could continue to fuel inflationary pressures and weigh on consumer spending and broader economic activity.

Against this backdrop, maintaining a vigilant and flexible approach will be essential at fund level. Close monitoring of geopolitical developments, their implications for Europe’s economic outlook, and the ECB’s forthcoming policy decisions will be key in determining the appropriate duration positioning within the portfolio. In addition, we intend to retain exposure to European sovereign bonds, making use of the permitted 15% allocation.