Monthly commentary Pareto ESG Global Corporate Bond
Labour market data is likely to remain a focus moving forward, as confirmed by Federal Reserve Chair Jerome Powell in his annual speech at Jackson Hole. Powell expressed confidence in inflation moving towards the target and stated that the time has come for rate cuts. At the same time, Powell was clear that a further cooling of the U.S. labour market is not welcome, and that the Fed will do everything they can to support the labour market. This is a pivotal shift in Fed’s communication, from a battle against inflation to a readiness to defend U.S. jobs.
With rate cuts in the cards, market interest rates continued to fall during the month. We have seen the largest decrease at the shorter end, with the US 2-year Treasury yield down 34 basis points during the month, now flat to the 10-year yield and no longer inverted for the first time in over two years.
At this point, most of the portfolio companies have released their second-quarter results. Overall, it has been a strong reporting period for the fund, with a vast majority of the companies meeting or exceeding our expectations. On the negative side, Progroup’s report was a disappointment, with the EBITDA margin coming in significantly lower than expected due to higher raw material prices and the temporary shutdown of one of their factories. The security company Verisure reported yet another strong report with good growth and credit metrics that continue to strengthen.
Just like the previous month, the fund performed well during August, driven by lower market interest rates and good cash return.
The fund is classified as an article 9 fund under the SFDR Disclosure Regulation.
The synthetic CDS credit index strengthened. The iTraxx Crossover index went from +297 bp at the end of July to +287 bp at the end of August.
Portfolio management team
Philip Lindgren
Portfolio manager
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