In September, the PCGA USD share class outperformed the benchmark Bloomberg Global Aggregate Corporate Index. Outperformance was driven by active security selection, having identified a number of attractively priced instruments that benefited from a potential upcoming regulatory change.
The main economic development during September was the Fed’s 50 basis point cut to US policy rates. While a rate cut was widely flagged, market expectations ahead of the decision were evenly split between a 25 and 50bps cut. Market pricing as of 30 September signals that a further 185bps of cuts are expected to the end of 2025.
This anticipated path of US policy rates, coinciding with economic data supporting the view that the Fed may be successfully engineering a ‘soft landing’, continues to be supportive for risk assets globally, particularly in the US. Benchmark US credit spreads for corporate bonds, as measured by the Bloomberg USD Corp Agg Index, tightened 4bps on the month to 88bps. The corresponding European benchmark was unchanged at 116bps. European underperformance was driven by wider spreads on French government bonds.
The absolute performance of PCGA was largely driven by the rally in global government bond yields. The US 10-year yield declined by 12bps to close the month at 3.78%, with German 10yr yields following suit with an 18bps rally to 2.12%.
According to JP Morgan, this was the second heaviest September in history in terms of European IG supply with €66bn of deals. Despite this, issuance continued to be marked by slim new issue premia with issuers able to take advantage of supportive risk sentiment to bring deals at or through where Coolabah saw fair value.
PCGA took part in 6 primary deals globally, including from financial and corporate issuers such as state owned Belfius Bank (previously known as Dexia), Citigroup, Credit Agricole, Novartis and QBE Insurance Group.
