Monthly Commentary – December 2021 Climate Bond

by | Jan 21, 2022 | Analysis & Performance, News

Performance
December started with strong performance as spreads tightened significantly (EUR Investment Grade (IG) spreads tightened by 13 bps on the month) following November’s sell-off. The second part of the month saw flat to tighter spreads against a backdrop of rising rates from more hawkish central banks – with clearly hawkish tones from the Federal Reserve (Fed) and Bank of England while the European Central Bank (ECB) delivered a marginally hawkish tone (monetary policy continues to be supportive overall). The 10-year Germany government bond yield surged by around 20 bps on the month to -0.18%. Across the capital structure, Additional Tier 1s (AT1s) (-50 bps on the month) outperformed insurance subordinated (-26 bps), bank’s Tier 2 (-16 bps) and senior IG (-13 bps). Overall the fund delivered a slightly positive performance over the month, as spread tightening more than offset the impact of rising rates.
Market
December issuance was light with only EUR 1.7 billion of fresh supply, mainly in senior format, following the market turbulence at the end of November. Interestingly we saw one new deal from the insurance sector in subordinated format (Tier 2), from Uniqa. This was the group’s second green Tier 2, a 2.375% EUR Tier 2 with a maturity in 2041 and callable in 2031. At a spread at issuance of 235 bps this came at the wider end of the euro Insurance Tier 2 market, particularly attractive for a BBB rated bond (A- issuer rating). We switched from the shorter dated 3.25% 2035 bonds (callable in 2025) given a very steep spread curve (70 – 75 bps pick-up in spread). The group scores “Medium Risk” for its environmental profile under our internal scoring framework (“Low ESG Risk” overall). However, we have decided to invest after engaging with the issuer. Our engagement resulted in a conviction that the trend was positive, for example the adhesion to the Net Zero Asset Owner Alliance, which brings froward setting the group’s interim science-based targets.
Positioning
In terms of positioning, beyond the switch to the new Uniqa Tier 2, we also added several positions. Two notable positions we added were senior preferred (super-senior debt that is out of scope of bail-in) from NIBC, a niche Dutch bank and UniCredit, the leading Italian lender. Both offer very attractive spreads, especially compared to senior non-preferred (bail-inable senior) from core European banks.
Outlook
We continue to see strong value in green bonds of European banks and insurers. With an average yield of 1.4% on the fund and an average spread of 150 bps we are capturing close to triple the yield of 0.5% on IG corporate bonds. We remain biased towards high quality issuers (BBB+ average bond rating).

  • The Valuation date: November 15, 2024
    serieAsOFDateFKFund NameISINMTDYTDSIMTDYTDSI
    120,241,115GAM Sustainable Climate Bond fundIE000BSJBO140.00860.0543-0.01980.865.43-1.98
    220,241,115GAM Star Crdt Ops EUR InvIE00B50JD3540.00720.11080.65520.7211.0865.52
    320,241,115GAM Star Crdt Ops GBP InvIE00B510J1730.00520.09330.92910.529.3392.91
    420,241,115GAM Star Crdt Ops USD InvIE00B57693100.00170.09280.84260.179.2884.26
    520,241,115GAM Interest Trend IncIE00BYM4P9130.00450.09410.37900.459.4137.90
  • Please read this important legal information before proceeding.Information contained herein are solely for the use of the person who has accessed this information and may not be reproduced or distributed, even partially, to any other person or entity.The material contained herein is confidential and intended solely for the use of the persons or entities with nationality of or respectively with their residence, domicile, registered office or effective administration in a State or Country in which distribution, publication, making available or use of the information is not contrary to applicable laws or any other regulation.The material contained herein is aimed at sophisticated, professional, eligible, institutional and/or qualified investors/intermediaries who have the knowledge and financial sophistication to understand and bear the risks associated with the investments described.The information is solely product-related and does not take into account any personal circumstances and does not qualify as general or personal investment recommendation or advice. In particular, the information is given by way of information only and does not constitute a specific legal offer for the purchase or sale of financial instruments. Moreover, nothing contained herein is constitutive of any tax advice.Every effort has been made to ensure the accuracy of the financial information herein but the information contained herein has not been independently reviewed or verified. Therefore, Atlanticomnium SA gives no assurance, express or implied, as to whether such information is accurate, true or complete and no responsibility is accepted by Atlanticomnium SA for any errors or omissions. Third-party content is the property of its respective provider or its licensor and is protected by applicable copyright law.Past performance is not indicative of future performance. The price of shares/units and the income from the funds/trusts can go down as well as up and may be affected by changes in rates of exchange or financial markets fluctuation, out of the scope of Atlanticomnium SA.To the fullest extent permitted by law, in no event shall Atlanticomnium SA or our affiliates, or any of our directors, employees, contractors, service providers or agents have any liability whatsoever to any person for any direct or indirect loss, liability, cost, claim, expense or damage of any kind, whether in contract or in tort, including negligence, or otherwise, arising out of or related to the use of the information provided.
    • AgreeCancel
    PERFORMANCE