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 2026

Introduction

Malta’s economy continued to show strong momentum in the second quarter of 2026, supported by resilient domestic demand, robust tourism activity and sustained consumer confidence. GDP expanded by 4.5% year-on-year, accelerating from an upwardly revised 4.2% growth in Q1. On a quarter-on-quarter basis, the economy grew by 1.1%.

Domestic demand remained a key driver of growth, accelerating to 4.2% from 3.2% in Q1, supported by increases in both government and household consumption. The strength of domestic activity was also underpinned by relatively contained inflation, which has helped sustain consumer confidence. Inflation edged up marginally to 2.1% in July, following a one-year low of 2.0% previously.

The continued government subsidies on energy prices have played an important role in containing inflation by keeping fuel and electricity prices stable, thereby shielding households from the direct impact of higher international energy costs amid ongoing geopolitical tensions. This has provided further support to domestic consumption and overall economic resilience.

In contrast, net trade was a drag on growth during the quarter, with imports increasing by 4.7% and outpacing the 4.0% rise in exports.

Market environment and performance

In the euro area, economic activity showed further signs of improvement. Business surveys reinforced the improving outlook, with the S&P Global Eurozone Composite PMI rising to 52.1 in August from an upwardly revised 52.0 in July, reaching nine-month high and exceeding expectations of 51.7. Growth was supported by a stronger manufacturing performance. Germany was a major contributor, recording its strongest manufacturing expansion since January 2022.

Eurozone inflation edged higher to 3.3% in August from 2.9%, in line with market expectations and remaining well above the European Central Bank’s 2.0% target. The increase was primarily driven by a renewed rise in energy prices following the resumption of hostilities in the Middle East, reinforcing the view that disinflation may prove uneven in the near term.

Fund performance

The CC Malta Government Bond Fund saw a 0.41% gain in the month of August, a performance which largely contradicts the widening observed amongst European sovereign bonds.

Market and investment outlook

In August, ongoing tensions in the Middle East and Eastern Europe contributed to higher commodity prices, reinforcing concerns around inflation and its impact on consumer purchasing power. The US Treasury’s announcement to increase the pace of longer-dated government bond buybacks also revived discussion around the so-called “debasement trade”, contributing to broader commodity strength and further weighing on the US dollar.

Government bond markets were generally weaker, with US yields more stable than those in continental Europe.

In the US, front-end Treasury yields moved higher following comments from Fed Chair Warsh that recent inflation data had not shown meaningful improvement. At the long end, the 30-year Treasury yield reached its highest level since 2007, prompting the US Treasury to announce that it would at least double the size of its buyback operations for longer-dated Treasuries. European sovereign bonds underperformed, as market participants continued to price a rate hike at the ECB’s September meeting. Policymakers too maintained a hawkish tone. The benchmark 10-year German Bund yield rose 12bps from the previous month-end, reaching a high of 3.32%, while French government bonds underperformed the broader European market amid growing focus on the country’s 2027 budget discussions.

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.