In August, the PCGA Strategy returned +0.60% compared to the benchmark Bloomberg Global Aggregate Corporate Index, which returned +0.75%.
The US labour market showed clear signs of slowing as key employment data, published at the start of the month, was extremely weak. This increased expectations that the Fed would cut policy rates at their September meeting and US 10-year yields declined by 15bps on the month. Elsewhere, long term bond yields surged with the 30-year Gilt yield breaching 5.50%, a level not reached since 1998. French borrowing costs also increased considerably as, once again, the country was faced by political instability stemming from the government’s inability to garner cross-party support for a €40bn savings package aimed at reining in the current deficit, which the European Commission forecasts will reach 5.6% of GDP for 2026.
Despite these macroeconomic concerns, equity market performance remained resilient, with most stock exchanges finishing the month in positive territory :the S&P 500 up just over +2%; Nasdaq 100 up +0.9%,; FTSE 100 up +1.2%; and the Eurostox 50 up +0.7%.
Credit markets underperformed equities in anticipation of increased seasonal supply in September. European IG credit spreads were 6bps wider to 84bps and US IG credit spreads finished the month 3bps wider.
Since its 10 October 2023 inception, the PCGA Strategy has outperformed the benchmark by +1.69% p.a. net (+2.25% p.a. gross) with an absolute annualised return of +10.44% net of fees (+11.00% gross) compared to the index return of +8.75%.
PCGA’s current (29th August) weighted average yield to expected maturity is 5.35% compared to the index’s 5.07%. PCGA’s weighted-average credit rating of A is one notch better than the index’s A- rating.
August was busier than usual for € primary, with a total of €44bn of IG issuance. Despite the holiday season, there was strong appetite for deals amongst investors. Most notably, there was an unusually high volume of subordinated debt issuance with several deals from Benelux issuers as well as an Australian bank, CBA.
High-grade issuers including UBS, Credit Agricole, and NatWest were amongst those bringing senior deals. French cooperative bank BPCE, noted for their social initiatives, brought a ‘Defence’-labelled bond, the first of its kind from a financial institution in the EU. The bond’s proceeds are ringfenced to finance eligible defence; and security projects and activities, specifically in Europe and France. BPCE printed €750m with a well-covered order book and the bonds performed strongly post-issuance.
In the US, August saw $104bn issued in US IG credit, with a heavier skew toward Corporates than usual, as only 37% came from Financials. In contrast, the year-to-date Financial/Corporate issuance split stands at 49.3%. This brings the overall YTD supply to $1.13tr, according to Bank of America.
