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30/06/2024

While the ECB made its first rate cut at the beginning of the month, volatility persisted in Europe amid political risk aversion following the dissolution of the French National Assembly. The German 10-year yield fell by 16bp to 2.51% while the OAT-Bund spread widened by 35bp to reach 82bp on 27 June, its highest level since 2012. The Italian 10-year also widened by 26bp to 157bp. In the United States, the drop in inflation and the first signs of an economic slowdown allow investors to envisage the possibility of a first rate cut in November. The US 10-year ended the month down 10bp at 4.40%.
European credit suffered from the French political context in June. Risk premiums rose 11bp for Investment grade, with the long part of the curve (+13bp for the 7-10 year) participating more in this movement than the short end (+6bp for the 1-3 year). Financials (+14bp) underperformed corporates (+9bp) following the correction of the subordinated banking (+24bp) and insurance (+26 bp) sectors, in particular French ones. Specifically, utilities (+14bp) and construction (+13bp) suffered the most while basic materials (+4bps) and chemicals (+6bps) were resilient.
The monthly performance remained positive, driven by the tightening of German rates. The IG index gained 0.67% while the performance of high yield, less correlated to sovereign rates, stood at 0.37%.
Over the period, the fund posted a performance slighter lower than that of its benchmark index (HEC4). June was marked by an average widening of risk premiums of 13bp. By rating, we note the following changes: BB (+26bp), B(0bp) and CCC (+22bp). The CCC segment (+1.95% over the month) was driven by the rebound of special situations such as Tele Columbus 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 -0.32% compared with -0.58% for the BB segment. These movements reflect a fairly low sector dispersion, with 17 sectors (out of 18) posting a positive performance over the period. The Real Estate sector posted the best average performance and gained +0.91%. As in the previous month, the market’s performance was mainly due to the ? effect, with the top 5 issuers contributing positively for +0.09%, compared with -0.046% for the 5 bottom issuers (EDF, SoftBank, Eurofins Scientific). This month, net inflows into European funds were negative at -€148m (according to the J.P.Morgan weekly study published on 26/06/2024), bringing the total annual figure to €5.46bn. Note that this outflow is concentrated on the ETF (-€674m), while open-ended funds recorded growth in their assets. Primary market activity picked up significantly with 21 transactions for a total volume of €11.6 billion (excluding financials). We note two factors: (i) the share of variable-rate issues is increasing and represents 20% of YTD volumes and (ii) LBO/M&A financing or dividends are back with 30% of volumes this month. We invested in RCI Banque, CMA CGM and Assemblin Caverion Group. Our relative performance is explained by the sale of Accentro 5.625% 2026 and our exposure to the RT1 AXA 6.375% Perp.