Monthly review and performance

Markets were weak in February as geopolitical tensions rose significantly following the Russian invasion of Ukraine. Monetary policy remained in focus with rates up on the month (10-year German Bund +12 bps) against a backdrop of high inflation numbers and hawkish central bank rhetoric – albeit rates rallied into month end as market volatility picked up. Euro investment grade (IG) credit spreads were significantly wider on the month, +39 bps following a global sell-off in risk assets. In the first part of the month, rates volatility and less supportive central banks – for example, the Bank of England announcing the sale of their corporate bond holdings or the European Central Bank (ECB) hinting for an early rate hike – have particularly impacted spreads. Total returns (EUR IG down -2.5%) were also impacted by rising rates. Across the capital structure, subordinated debt underperformed, with banks’ Tier 2 spreads 60 bps wider, subordinated insurance 70 bps wider and additional tier 1 (AT1) contingent convertible bonds (CoCos) 80 bps wider. 

The issuance of green bonds of European financials was light in February at EUR 4.6 billion, only in senior format and mainly from the higher rated Nordic issuers. The combination of black-out periods for a number of issuers ahead of full year earnings releases, plus deteriorating market conditions, led to a very tight window for primary markets access. On the fundamental side, earnings have continued to be very strong – as issuers delivered very robust full-year 2021 results, boosted by the release of loan loss provisions made post Covid-19. Asset quality continues to surprise to the upside, as non-performing loans (NPLs) continue to remain at record low levels, showing no sign of deterioration.

The fund has no direct exposure to Russia or Ukraine, being focused on green bonds of European banks and insurers. In terms of indirect exposures, these are minimal and would have no material impact on issuers’ credit profile.

The issuer in the fund with the largest indirect exposure is Société Générale’s through their stake in Rosbank which is around 2% of loans. A full write-down of its stake in Rosbank (Russian entity) would be worth only 50 bps of capital. Put in perspective, Société Générale has 470 bps of excess capital (approximately EUR 17 billion). Therefore, from a credit perspective this would not be significant.

We continue to see strong value in green bonds of European banks and insurers. With an average yield of 2.4% on the fund and 210 bps of spread (option-adjusted spreads) we are capturing more than 1% pick-up in yield compared to 1.3% on IG corporate bonds. We remain biased towards high quality issuers (BBB+ average bond rating).

Project Corner : BNP Paribas

Project features
  • other green assets – battery energy storage systems
  • Location: Sweden • Project owner: Northvolt
  • Total financing amount: USD 1.6 billion (BNP Paribas’ share not disclosed
  • Potential annual output capacity of 40 GWh (Northvolt Ett)
Additional details
  • It will be the first gigafactory in Europe
  • Northvolt targets 50% recycled materials in new batteries by 2030
  • BNP Paribas acted as advisor to Northvolt and took a part of the debt financing
  • The project is under construction and expected to be fully operational by the end of 2022 BNP Paribas’ sustainability strategy
BNP Paribas’ sustainability strategy highlights
  • It has a net-zero commitment by 2050 including the group’s lending portfolio
  • It takes a granular approach to the group’s net zero pathway, focusing on sectors with the most impact: BNP Paribas targets a better mix in its energy book compared to the International Energy Agency’s (IEA) sustainable development scenario (SDS) (well below 2 degrees C pathway)
  • BNP Paribas was part of the “Katowice banks” (BBVA, BNP, ING, Société Générale, Standard Chartered) that pledged to develop an opensource methodology to steer their portfolios to the Paris Agreement targets.
  • The Valuation date: April 23, 2024
    120,240,419GAM Sustainable Climate Bond fundIE000BSJBO14-0.00790.0051-0.0656-0.790.51-6.56
    220,240,419GAM Star Crdt Ops EUR InvIE00B50JD354-0.00550.04620.5590-0.554.6255.90
    320,240,419GAM Star Crdt Ops GBP InvIE00B510J173-0.00450.03380.8240-0.453.3882.40
    420,240,419GAM Star Crdt Ops USD InvIE00B5769310-0.00530.02990.7366-0.532.9973.66
    520,240,419GAM Interest Trend IncIE00BYM4P913-0.00960.02560.2927-0.962.5629.27
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