The Pacific Coolabah Global Active Credit Fund outperformed its benchmark in May. As of 31 May, the Fund’s weighted average yield to expected maturity is 6.31% (USD), which compares with the benchmark yield of 5.10%.
Broadly speaking, May was a positive month for risk sentiment. The tone was set early in the month by dovish comments from FOMC Chair Powell, strongly indicating the FOMC were willing to look through recent upside surprises on inflation. Economic data suggesting parts of the US economy were slowing resulted in 10-year US government bond yields decreasing by 18 basis points to 4.50%. This supported equity valuations, with rate-sensitive tech stocks outperforming the broader market. The S&P500 was up 4.8% on a total return basis and the NASDAQ 100 up 6.3%, with Nvidia up another 26% following a strong quarterly update.
In Europe equity markets returns were also positive with the FTSE100 up 2% and the Eurostox 50 up 2.4%. Government bond yields were more mixed with UK 10-year yields decreasing by 3bps to 4.32% but German 10-year yields increasing by 8bps to 2.66%.
Turning to credit markets, broad IG credit indices mirrored the positive return of equities. European and US corporate bond spreads tightened by 3bps with European spreads, as represented by the Bloomberg Euro Aggregate Corporates index, closing the month at 1.07% and the equivalent US index at 0.84%.
May was a particularly active month in primary issuance markets, yielding many opportunities. The Fund’s unconstrained ability allowed it to deploy capital and identify attractive deals across multiple currencies and jurisdictions. According to data from Citigroup, on a year-to-date basis, corporates have issued approximately €1.1bn across EUR and USD markets. This represents 17% more volume than the previous 5-year average, as they look to substantially complete funding requirements ahead of potential market volatility prior to the US election. May itself saw just over €200bn of primary deals across the 2 main funding currencies. There has been a notable increase in so-called “Reverse Yankee” issuance (ie, US issuers raising funds in Euro). May saw over €20bn of deals from US issuers looking to take advantage of the relatively
attractive funding conditions in Europe over the US.
