ERSTE BOND COMBIRENT primarily invests in government bonds denominated in euros that are issued or guaranteed by issuers from Europe and that are mainly rated in the investment grade segment (or a comparable segment) by recognized rating agencies in terms of their creditworthiness. Ecological and social factors as well as corporate management factors are integrated into the investment process.

Note: Past performance is not a reliable indicator of future performance.

Performance since start of the fund. The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation.

How do you sum up the last year?

In order to fight the accelerating momentum of inflation in the first half of 2023, a large number of central banks have responded with an extraordinary tightening of their very loose monetary policy. The European Central Bank, for example, raised the deposit rate sharply in several steps, most recently to 4% in September 2023.

These aggressive hikes of the key-lending rates caused very volatile movements in bonds in 2023 with temporary losses, although the fund achieved a gain of 6.7% year-on-year.

On what did you focus in the fund in this environment?

We continuously adjusted the fund's maturity management and the country weighting within the Eurozone to the monetary policy and economic environment.

We invested largely in Austrian mortgage bonds as well as state-guaranteed bonds from the Eurozone in order to benefit from the so far attractive interest rate differential to the bonds from some countries of the Eurozone. In the year to date, this share has been further increased to a total of around 20% of assets under fund management.

Note:  In the context of active management, the portfolio positions mentioned may change at any time.”

What are your expectations for the market year 2024?

The development from here on in will depend not only on how quickly and sustainably inflation rates continue to fall, but also increasingly on the economic development in the foreseeable future, as economic growth in the Eurozone has already suffered noticeably as a result of the drastic interest rate hikes. Some countries in the Eurozone have now even slid into a slight recession, which makes further interest rate hikes by the ECB much more difficult.

Due to the lower inflation rate and the increased risk of recession, the ECB has recently paused its interest rate hike cycle. However, the bank has also indicated that it intends to remain at this interest rate level for longer. The market also expects the interest rate hike cycle to finish by the end of 2023 and envisages possible initial interest rate cuts in the second half of 2024.

That being said, the economic slowdown and rising recession risks associated with the sharp interest rate hikes to date should also contain any further sharp increases in yields for longer maturities. Together with the now again attractive yields in the Eurozone across the entire yield curve, this represents a good starting point for 2024.

Note: Prognoses are not a reliable indicator of future performance. Please note, that an investment in securities entails risks in addition to the opportunities described.

What are your priorities in the fund based on this?

Building on this, the fund management team will continue to focus on maturity management, yield curve management, and the management of the country weighting within the Eurozone  in 2024.

The high proportion of covered bonds also remains a strategic focus for 2024 and will be maintained for the time being, depending on the development of the interest rate differential.

ERSTE BOND COMBIRENT