Malta Government Bond Fund

The CC Malta Government Bond Fund aims to maximise the total level of return for investors through investment, primarily, in debt securities and money market instruments issued or guaranteed by the Government of Malta.

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

September 2021

Policy action by the respective central bankers, sustainability in economic momentum, and inflation proposition – stemming from a reopening of economies, supply chain disruptions, and a commodity super-cycle, were undoubtedly the key themes in Q3 2021.

The role of central bankers and governments, have since the coronavirus pandemic broke, been crucial. In response to the ensuing economic disruptions, policy makers intervened, introducing from a monetary policy perspective; interest rate cuts and bond purchasing programmes. Governments, albeit generally constrained in terms of fiscal space, swiftly reacted, introducing fiscal stimulus. Monetary intervention allowed corporates to tap the primary market at low favourable rates while fiscal intervention allowed corporates to maintain their cash buffers and ultimately survive. The latter at the expense of increased debt levels.

From an economic viewpoint, the path towards a full recovery, proved bumpier than previously anticipated. A vaccination drive taking long to pick-up speed along with a more severe wave of infections, lessened the pace of the recovery, giving rise to doubts about the sustainability of economic growth. While a slight deceleration in the pace of expansion is to be expected as economies normalise after the pandemic, the extent of such normalisation and sustainability in economic momentum remains in question.

In September, Eurozone Manufacturing PMI stood at 58.6, largely unchanged from a preliminary estimate of 58.7 yet notably lower from the previous month’s reading of 61.4, as rates of expansion in output, new orders, and employment, cooled. Albeit being the lowest since February 2021, September’s reading pointed to another month of strong improvement in operating conditions. Meanwhile, Eurozone Services PMI stood at 56.4 in September 2021, slightly higher when compared to preliminary expectations of 56.3 and lower than the previous month’s reading of 59.8.

Eurozone inflation was estimated at 3.4 per cent in September 2021, higher than August’s actual 3.0 per cent and above economist expectations of 3.3 per cent. September’s flash reading is the highest since November 2011. Month-on-month, inflation increased by 0.50 per cent.

European Sovereign yields continued to reverse the downward moves witnessed towards the end of Q2 and beginning of Q3, 2021. Germany’s 10-year benchmark yield closed the month 19bps higher, at 0.20 per cent. Bond yields of sovereigns within the bloc’s periphery – those which offer a premium over Germany’s negative yielding debt, also rose, at somewhat slower pace. In September, Italy’s and Spain’s 10-year sovereign yields rose 15bps and 12bps, respectively.

In the month of September, the CC Malta Government Bond Fund registered a loss of 0.51 per cent, outperforming the MSE Malta Government Stocks Total Return Index which declined by 0.75 per cent.

The Manager’s forward looking view is to continue to play the duration play depending on market conditions. Should inflationary expectations increase, a lower duration will prove determinant for relative outperformance, as witnessed in the fund’s performance on a year-to-date basis.