Information for investment professionals

In Credit
5 August 2024

We’ve been waiting for you Mr Bond…
Markets at a glanceDavid OliphantExecutive Director,
Fixed IncomeContributors
David OliphantPrice / Yield/ Spread

Change1 weekIndex QTD
return*Index YTD
returnUS Treasury 10 year

3.73%

-47 bps

4.0%

3.2%

German Bund 10 year

2.12%

-29 bps

2.6%

0.5%

UK Gilt 10 year

3.78%

-32 bps

3.1%

0.1%

Japan 10 year

0.79%

-28 bps

0.6%

-2.6%

Global Investment Grade109 bps

9 bps

3.1%

3.3%

Euro Investment Grade118 bps

9 bps

2.1%

2.6%

US Investment Grade106 bps

11 bps3.6%

3.7%

UK Investment Grade

97 bps

0 bps

2.3%

2.2%

Asia Investment Grade173 bps

22 bps2.0%

4.6%

Euro High Yield

399 bps

30 bps

1.1%

4.3%

US High Yield

372 bps

62 bps

1.6%

4.2%

Asia High Yield

600 bps

2 bps

2.1%

12.1%

EM Sovereign

372 bps

23 bps

2.4%

4.3%

EM Local

6.3%-19 bps

3.0%

-0.9%

EM Corporate

293 bps

18 bps2.1%

6.0%

Bloomberg Barclays US Munis

3.4%-17 bps

1.9%

1.5%

Taxable Munis4.6%-38 bps

5.2%

4.0%

Bloomberg Barclays US MBS

42 bps-2 bps

4.5%

3.5%

Bloomberg Commodity Index

219.57

-1.2%

-5.7%

-0.9%

EUR

1.0953

0.5%

1.8%

-1.2%

JPY

142.87

4.9%

9.8%

-3.7%

Emerging Markets

GBP

1.2754

-0.5%

1.2%

0.5%

Kris Moreton

Source: Bloomberg, ICE Indices, as of 2 August 2024. *QTD denotes returns from 30/06/2024.

Structured Credit

Chart of the week – US 10-Year Treasury Yield

Investment Grade Credit

Simon Roberts
Macro/Government Bonds

Angelina Chueh
Euro High Yield Credit
Chris Jorel
US High Yield Credit,
US Leveraged Loans
Laura Reardon

4.9

Asian Fixed Income

4.7Charlotte Finch

4.5

Responsible Investments
Investment Grade Credit

4.3

Gary Smith
General Fixed Income%

Justin Ong

4.1
3.9
3.7
3.5

Sarah McDougall
General Fixed Income
Source: ICE Indices, Bloomberg, Columbia Threadneedle Investments, as of 5 August 2024.

CTEA6861741.1 Issued August 2024 | Valid to end October 2024

In Credit  05 August 2024

Macro / government bonds
A weak Non-Farms Payroll number of 114k triggered an enormous market move. The number
was below the 12-month average monthly gain of 215,000. Unemployment also ticked up to4.3%, its highest level since October 2021. The number triggered an immediate rally in the US
Treasury market. During the week, the yield on the US 2-year Treasury fell 50bps, while the US
10-year Treasury broke through the important 4% level to end the week at 3.8%. The swaps
market moved from pricing in two quarter point rate cuts by year-end to more than four quarter
point rate cuts. The rally in the US Treasury market exerted downward pressure on bondmarkets globally, with the yield on 2-year German and UK bonds declining 30bps over thecourse of the week.
In a busy week for central banks, the Bank of England and the Bank of Japan both took interestrate decisions. The Monetary Policy Committee (MPC) cut UK interest rates by 0.25% to 5% inwhat was termed a finely balanced decision (5/4 split on the committee). The divergence of
opinions within the MPC pointed to a modest sequencing of interest rate cuts. Market pricing inthe swaps market continued to point to two quarter point rate cuts by year end in the UK.
The Bank of Japan raised its benchmark interest rate from 0.1% to 0.25%. It also announced it
would halve the amount of bond purchases from six to three trillion yen by April 2026. As central
banks in developed markets reduce, or get set to reduce, interest rates, Japan remains theoutlier. The changing view on the outlook for interest rates in the US translated into a significant
strengthening in the yen, which appreciated 5% versus the US dollar.
In terms of positioning on the global rates desk, we remain constructive on duration, tacticallyincreasing duration on Non-Farm Payrolls Day before taking some profits on Monday. We also
still have yield curve steepening positions in place, and a strategic short position in Japan.

Investment grade credit
Corporate results were well under way last week in review of the second quarter and first half ofthe year, with a general sense that corporates are performing well with a handful coming in
better than expected. There is still a few more weeks of results to come so it’s difficult to draw aconclusion just yet.
Spreads ended July pretty much where they started, but in reaction to macro events we did
experience some widening at the end of the week. Global and European investment grade
markets moved 8bps, whilst the UK remained broadly flat.
Thames Water officially left a number of investment grade indices last week as we hit monthend, due to liquidity concerns. Moody’s moved first and S&P followed as Thames’ Class A andClass B debt was downgraded and flushed down to high yield (pardon the pun). This double hitmeans Thames could be in breach of its operating licence. However, a downgrade to high yield
is not an automatic trigger of SAR (Special Administration Regime) and is a decision to bemade by Ofwat based on the Company’s remedial plan.

High yield credit & leveraged loans
US high yield bond spreads widened sharply over the week given a string of weak labour
market data reports. The ICE BofA US HY CP Constrained Index returned -0.14% and spreads
were 62bps wider. Spreads widened to +394bps, their highest level since December 2023. The
yield-to-worst of the index increased 0.15% to 7.71%. According to Lipper, retail high yield funds
saw a $438m contribution. In leveraged loans, the average price of the Credit Suisse Leveraged
Loan Index declined slightly to $95.6. While prices were stable, the yield-to-3-year takeout
declined nearly 50bps to 8.50% over the week given the pull forward of Fed cut expectations.
Retail loan funds saw a $59m withdrawal, just the second outflow over the last 32 weeks.

CTEA6861741.1 Issued August 2024 | Valid to end October 2024

In Credit  05 August 2024

European High Yield (EHY) returned a strong July performance of 1.25% largely from income
and a fall in underlying yields (-0.12% to 6.82%) as spreads were close to unchanged with just amodest widening (+3bps) over the month. CCCs sharply underperformed the market (0.79%) as
spreads widened 196bps, breaching 1,500bps on the upside (based on ICA BoA index HE30).
The month finished with a jumbo week of issuance (€3.7bn equivalent) from four issuers, due toa jumbo offering from the pubs owner group, Stonegate. It came to the market with two issues –£1.645bn in sterling and €470m in euros – both with yields over 10%. This brings YTD grossissuance to €79bn, far surpassing full year issuance in 2022 and 2023. Flows were also strong
with €426m largely from managed accounts, while ETFs also experienced inflows.
In credit rating news, Ineos Quattro was downgraded by Moody’s to B1 from Ba3. This reflects
elevated leverage and an expectation that any earnings recovery will be gradual, particularly inlight of the softening macro picture. Not surprising at this stage, with net leverage currently >7x(>9x per Moody's). There was more bad news in the retail sector as another French retailer,
Auchan (ELO) was downgraded to BB from BB+ by S&P. The rating agency cited “continuousperformance deteriorating, especially in France, poses a long term threat to the group’screditworthiness….” In the building sector, Pfleiderer was downgraded to CCC from B on thelikelihood of a distressed exchange. This followed a similar recent downgrade from Moody’s toCaa1. The rating change announcement was swiftly followed by an announcement fromPfleiderer that it had achieved a 99% approval for its A&E plan, so will be able to implement it
via the indenture, without going through a court process.
In sector news, Q2 earnings announcements appear to be presenting a mixed bag of numbers
for the auto sector with OEMs seemingly in a better place than auto suppliers at the moment. In
some cases, sales forecasts are being cut. Still, for the most part, margins and FCF have been
affirmed (albeit towards the lower end of the expectations range).

Structured credit
Last week, the US Agency MBS sector was up a whopping 2.72%. On Friday morning, NonFarms Payroll came in at 114k, which was 61k lower than expectations and the unemployment
rate came in at 4.3% vs 4.1% expectations. This led to a large bull steepener with the 2-year
rallying around 27bps and the 10-year rallying some 19bps. Mortgages saw some softness
during the sharp move in rates in the morning but found their footing midday and spreads ended
the week roughly 8bps tighter. In CMOs, even before the large rally on Friday there wasincreased demand for mortgage derivatives, specifically inverse IO. With the number and speedof cuts increasing, we expect this demand to remain strong.
CMBS spreads widened into the end of the month across the stack on increased supply fromboth primary and secondary markets and a reduction in investor appetite. Dealer balance
sheets are building and could extend the risk off tone we’re witnessing. There is still demand forseasoned paper on the 2-4 year part of the curve, but that profile is finding its home ininsurance / buy and hold money.

Asian credit
The State Council of China has laid out 20 key measures to drive consumer spending in thecountry. The framework includes the enhancement of financing support to eligible small andmicro enterprises in the service industry, the implementation of additional personal income tax
deductions to offset childcare costs, education expenses and elderly care. There are also plans
to launch promotion activities for culture and tourism consumption, expedite the resumption offlights, provide various payment services and expand visa-free policy to more countries.
MGM China reported positive Q2 results with a market share of 16% in the Macau gaming
sector. Thanks to the higher allocation of gaming tables and slot machines as well as therecovery in visitor numbers, Q2 revenue rose to HK$8bn (+37% y/y) and EBITDA increased to
HK$2.4bn (+39.8% y/y). The company’s liquidity position remained solid with $668mn of cash
and available revolving credit facility ($1.4bn) as of June 2024.

CTEA6861741.1 Issued August 2024 | Valid to end October 2024

In Credit  05 August 2024

Adani Ports provided a strong set of guidance for FYE March 2025 with its expectation thatcargo will increase to 460-480mmt (prior year: 420mmt), which will drive revenue to INR280bn310bn (prior year: INR267bn) and EBITDA to INR170-180bn (prior year: INR158.6bn).

Emerging markets
Risk-off momentum in EM debt built steadily over the week before lurching into a highly
dislocated post-payrolls crescendo. Spreads widened some 25bps with the usual high-betasuspects driving the move.
For the most part, EM bonds were responding to dynamics in the macro environment. But
idiosyncratic weakness played its part too: Kenya’s troubled journey towards an IMF-friendly
fiscal consolidation was disrupted by the Supreme Court’s ruling that last year’s tax reform wasunconstitutional; elsewhere the fallout from Venezuela’s disputed election result continues toundermine prices.
On a brighter note – early in the week Peru was able to bring its first issue in three years, a$3bn dual-tranche new issue at a reasonably tight spread. Primary market activity may now be
dampened until stability is restored.
EM central banks are reluctant cutters at this stage in the cycle, with food and services inflationstill a concern for many. Chile’s was the latest central bank to disappoint market hopes of a
25bps cut. Moreover, several EM currencies found themselves under pressure from theunwinding of carry trades funded out of Japanese yen.
Market prospects depend on broader macro risk sentiment and, for some names, escalating
tensions in the Middle East. A correction in spreads from especially tight levels has not been asurprise, and investors may require a return to a more stable global environment before reengaging.

Responsible investments
There was a steady flow of new issuance into the labelled bond market in July, approximately$80bn+ according to Bloomberg. Despite issuance slowing in the last few months, theexpectation remains for a record (or near to record) level of annual issuance by year end.
NatWest sought to raise €750m via an ‘Electric Vehicle’ Green Bond last week, where use ofproceeds will focus on supporting the transition to low carbon transportation of people andmaterials through funding electric passenger and commercial vehicles. Lloyds followed with agreen bond issue of €1bn, with use of proceeds seeking to fund residential and commercial
green buildings, alongside a smaller allocation to renewable energy and clean transport loans.

CTEA6861741.1 Issued August 2024 | Valid to end October 2024

In Credit  05 August 2024

CTEA6861741.1 Issued August 2024 | Valid to end October 2024

In Credit  05 August 2024

Important information: For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Source forall data and information is Bloomberg as at 05.08.2024, unless otherwise stated.
This material in this publication is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities orother financial instruments to anyone in any jurisdiction in which such offer is not authorised, or to provide investment advice or services.
Offerings may be made only on the basis of the information disclosed in the relevant offering documents and the terms and conditions under
the relevant application forms. Investment involves risk. You are advised to exercise caution in relation to this material. Please refer to therelevant offering documents for details and the risk factors. Past performance is not a guide to future performance. The value of investments
and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that aninvestor may not get back the amount invested. The analysis included in this publication has been produced by Columbia Threadneedle
Investments for its own investment management activities, may have been acted upon prior to publication and is made available here
incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen asinvestment advice. Information obtained from external sources is believed to be reliable, but its accuracy or completeness cannot beguaranteed. The mention of any specific shares or bonds should not be taken as a recommendation to deal. This document includes forward
looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its
directors, officers or employees make any representation, warranty, guarantee, or other assurance that any of these forward-looking
statements will prove to be accurate. This document may not be reproduced in any form or passed on to any third party in whole or in parts
without the express written permission of Columbia Threadneedle Investments. This document is not investment, legal, tax, or accountingadvice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating aninvestment with Columbia Threadneedle Investments. This document and its contents have not been reviewed by any regulatory authority. Inthe UK: issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: CannonPlace, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. In Australia: Issued byThreadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australianfinancial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services itprovides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section
761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore
under the Securities and Futures Act (Chapter 289), which differ from Australian laws. In Singapore: Issued by Threadneedle Investments
Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the MonetaryAuthority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has notbeen reviewed by the Monetary Authority of Singapore. In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities andFutures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance(Chapter 622), No. 1173058. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle groupof companies. columbiathreadneedle.com

CTEA6861741.1 Issued August 2024 | Valid to end October 2024