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PCGA
Performance Data
- In August, the PCGA USD share class returned 0.41%, outperforming its benchmark, the Bloomberg Global Aggregate Corporate Index, by 0.06%. The GBP share class similarly outperformed its corresponding benchmark by 0.03%, returning 0.39%.
- Since its 10 October 2023 inception, PCGA’s USD share class has outperformed the benchmark by 1.14% p.a. net (1.87% p.a. gross) with an absolute annualised return of 7.66% net of fees (8.40% gross) compared to the index return of 6.52%.
- PCGA’s current (28th August) weighted average yield to expected maturity is 5.64% compared to the index’s 5.41%. PCGA’s weighted-average credit rating of A is one notch better than the index’s A- rating.
PCAL
Performance Data
- In August, the PCAL GBP Z share class returned 0.27%, outperforming the duration-hedged Bloomberg Corporate index by 0.05% and in line with sterling cash.
- PCAL’s current (28th August) weighted average running yield is 5.20%, representing an excess yield of 156 bps above SOFR. PCAL’s portfolio has a weighted-average credit rating of A.
Market Overview
- August delivered a global bond market shock, with longer-dated government bond yields hitting multi-year highs across major economies. Stubborn inflation sat at the root of the sell-off, not only keeping yields elevated in its own right, but driving up the cost of servicing government debt while deficits remain wide and debt metrics deteriorate. With bond markets demanding more compensation to finance that combination, and heavy new supply – including from the large technology “hyperscalers” funding their AI infrastructure build-out – adding to the pressure, longer-dated yields bore the brunt.
- Policymakers pulled in opposite directions. Fed Chair Warsh struck a firmly hawkish tone at Jackson Hole, signalling there was still “work to do” on inflation and showing little appetite to resist higher long-term yields – by month-end, markets were pricing a 65% chance of a rate hike in September. The US Treasury, by contrast, leaned against the sell-off: Secretary Bessent unexpectedly announced that buybacks of longer-dated Treasuries would be at least doubled, initially pulling 30-year yields back from their highs. The ECB and Bank of Japan sounded similarly hawkish, with markets almost fully pricing September hikes from both.
- The net result was another month of higher yields, though more contained than the moves seen earlier in the summer: 10-year US Treasuries rose 4bps, German Bunds 12bps, French OATs 18bps and Japanese government bonds 15bps, while UK Gilts were broadly flat at +1bp.
- Commodities told an inflation story. Brent crude ended the month little changed, though only after a volatile round trip driven by shifting hopes of US-Iran talks. The more striking move was in refined products: diesel refining margins (“crack spreads”) surged past $100/bbl for the first time on record, a sign that fuel markets are far tighter than crude prices alone suggest — with direct implications for transport costs and broader inflation. European natural gas rose 18.2%, and gold climbed 9.7% as investors sought protection against rising inflation risk.
- Equities largely shrugged off the rates volatility. The S&P 500 returned 2.7%, touching a fresh record high mid-month, with technology leading the way — the Nasdaq 100 gained 4.2% and Japan’s Nikkei recovered 3.0%. Europe was more mixed: the Euro Stoxx 50 rose 1.0%, while the FTSE 100 edged slightly lower. Credit markets were comparatively calm, with US investment-grade spreads 1bp tighter and European spreads 1bp wider.
- US primary markets stayed busy, with $164bn of investment-grade issuance taking year-to-date supply roughly 37% ahead of last year. The month’s defining deal was Alphabet’s $25bn ten-tranche transaction — and the contrast with July was telling. Where Amazon’s similar-sized deal struggled to attract demand a month earlier (books just 1.6x covered), Alphabet drew orders of roughly $112bn, 4.5x covered, with the new bonds performing well after pricing. Investor appetite for AI-related supply, it seems, is discerning rather than exhausted. With the big US banks absent after their July funding, financials issuance was led by UK and European names.
- In Europe, the market reopened cautiously after the summer. Investment-grade supply picked up to €43.6bn, but with credit spreads near all-time tights and a heavy September pipeline looming, investors became noticeably more selective — financials deals averaged just 1.9 times subscribed, a marked step down from July’s 4 times. It was a subtle shift in the balance of power back towards investors after a summer of issuer-friendly conditions.
- Among the highlights, banks took advantage of compressed spreads to issue further down the capital structure, and Mizuho’s €1.5bn dual-tranche deal stood out among financials, drawing €3.7bn of demand and rallying 2-4bps after pricing. In corporates, GSK’s €3.5bn multi-tranche deal — funding its acquisition of Nuvalent — drew €11.6bn of demand and performed well in secondary trading.
