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PCGA
Performance Data
- In September, the PCGA USD share class returned -2.44%, modestly behind its benchmark, as the sharp rise in government bond yields weighed on bond markets globally. The GBP share class returned a similar -2.45%.
- Since its 10 October 2023 inception, PCGA’s USD share class has outperformed the benchmark by 1.00% p.a. net (1.73% p.a. gross) with an absolute annualised return of 6.55% net of fees (7.28% gross) compared to the index return of 5.55%.
- PCGA’s current (30th September) weighted average yield to expected maturity is 6.30% compared to the index’s 5.92%. PCGA’s weighted-average credit rating of A is one notch better than the index’s A- rating.
PCAL
Performance Data
- In September, the PCAL GBP Z share class returned 0.07%
- PCAL’s current (30th September) weighted average running yield is 5.29%, representing an excess yield of 139 bps above SOFR. PCAL’s portfolio has a weighted-average credit rating of A.
Market Overview
- The bond market sell-off gathered pace in September as the Fed, ECB and Bank of Japan all raised rates within days of each other. Having flagged the likelihood of a hike in his Jackson Hole speech in late August, Chair Warsh united the FOMC to deliver a unanimous hike, the Fed’s first since 2023, making it among the last of the major central banks to join a tightening cycle. His press-conference language was interpreted as hawkish too, describing the move as merely “removing a dose of accommodation”, implying policy remains stimulatory even after the hike. The ECB, continuing its own tightening, lifted both its growth and inflation projections and warned that inflation would stay above target for longer, leaving markets pricing further moves. Renewed US-Iran hostilities, which pushed oil back above $100/bbl, added to the inflationary pressures forcing policymakers’ hands.
- Benchmark 10-year yields finished the month sharply higher: US Treasuries rose 55bps, UK Gilts 36bps, German Bunds 26bps and Japanese government bonds 11bps. France fared worst. Concerns over budget negotiations ahead of next spring’s presidential election drove 10-year OAT yields up 68bps, and the spread over Bunds widened to 127bps, the most since 2012.
- Brent crude climbed 14.4% to $103.53/bbl. as the US and Iran traded strikes for the first time since July, attacks on shipping in the Strait of Hormuz intensified and Iran-allied militants hit Saudi energy facilities. The squeeze in refined products deepened: diesel refining margins set fresh records above $100/bbl as Russia extended its diesel export ban and China held back fuel exports, and US diesel prices at the pump reached all-time highs – prompting Washington to float an export ban of its own while pressing European allies to release their stockpiles instead. Precious metals went the other way: gold fell 6.3% and silver 9.2%, giving back much of August’s rally as rising yields made non-income-producing assets less attractive to hold.
- Equity gains were narrow. The S&P 500 was broadly flat, returning -0.35%, and technology was the only sector to finish higher, with renewed AI enthusiasm lifting semiconductors 9.5% and the Nasdaq 100 by 3.3%. Markets elsewhere were weaker; the Euro Stoxx 50 lost 2.2% and the FTSE 100 2.0%. Credit spreads widened alongside rates, with European investment-grade spreads 11bps wider and US spreads 3bps wider.
- The US primary market digested a heavy month of supply with little difficulty. Some $210bn of investment-grade debt was issued, yet new-issue concessions averaged only around 2.5bps, so issuers barely had to pay up for the volume. Non-US banks led supply after Labor Day, and Citi’s $12bn four-tranche deal, which attracted $40.5bn of demand, was the standout. Acquisition funding drove much of the corporate supply, notably Aon’s $13.5bn raise for its $17bn purchase of USI.
- Europe was a tougher market for issuers. Supply jumped to €107bn as participants returned from the summer, and investors, more selective since August, demanded concessions averaging 6bps on financials deals, more than double the US level. That selectivity carried a wider cost: several issuers saw their existing bonds reprice towards the cheaper new-issue levels.
- There were signs that higher yields are tempting in new buyers. UBS’s €1.75bn long-dated deal offered an all-in yield above 4.5%, enough to draw strong insurer demand, with books 3.7x covered and the bonds performing well after pricing. Amazon, meanwhile, made its debut in the sterling market, raising £4bn against £10.7bn of orders, with the shorter tranches tightening 2-3bps in secondary trading.
