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31/05/2024

Rates rose in the eurozone in May in a volatile environment, with investors facing statements from central bankers wanting to cut rates for the first time despite the publication of better-than-expected economic data. Uncertainty remains regarding the pace at which the ECB will ease its monetary policy after June, with a second cut expected by the end of the year. The German 10-year ended the month up 8bps at 2.66% while the US 10-year ended the month down 17bps at 4.50%. The latest inflation figures and the downward revision of growth for the first quarter indicate a first rate cut in November or December.
The tightening trend on European credit continued in May, driven by the most speculative securities. Risk premiums were down 2bp for investment grade, with the middle of the curve (-3bp for the 3-5 year) participating more in this movement than the short and long parts, which were stable (0bp for the 1-3 year and the 10+). Financials (-6bp) outperformed Corporates (+1bp), dragged down by subordinated banking and insurance (-16bp and -14bp). The oil and gas sector posted the best performance (-2bp) in the segment while basic materials (+4bp) and chemicals (+2bp) widened. However, the IG index was up 0.22% over the month, while the sharp compression of risk premiums in high yield reached 18bp, enabling the segment to post a marked outperformance (+0.95%).
Over the period, the fund performed in line with its benchmark index (HEC4). May was marked by an average tightening of 15bp in risk premiums. Changes by rating were as follows: BB (-17bp), B (-13bp) and CCC (-200bp). The CCC segment (+1.95% over the month) was driven by the rebound of special situations such as Heimstaden AB, Branicks Group AG and SFR. Adjusted for interest rate movements, the B segment outperformed the rest of the universe (excl. CCC) and posted an excess return of 0.99% compared with 0.75% for the BB segment. These movements reflect a fairly low sectoral dispersion, with 18 sectors (out of 18) posting a positive performance over the period. The Real Estate sector posted the best average performance and gained +2.7% (-50bp). Note that CPI Property Group SA erased almost all of its gains, following Moody’s downgrade to BB+ (vs. BBB- previously) at month-end. Unlike in previous months, the market’s performance was mainly due to the ? effect, with the top 5 issuers contributing positively for +0.148%, compared with -0.037% for the bottom 5 (Medical Properties Trust, Foncia Groupe SAS, Citycon Oyj, etc.). This month, net inflows in European funds amounted to €493m (according to the weekly J.P.Morgan study), bringing the total annual amount to €5.34bn. Primary market activity picked up significantly with 27 transactions for a total volume of €15.3 billion (excluding financials). This momentum could tip the asset class into a positive net offer situation and weaken valuations. We participated in Eramet, La Doria SpA, Fives and Bité. Our relative performance is explained by the lack of exposure to Altice International, BFF Bank SpA and Profine.