February ended up as a pretty wild ride in sovereign yields as rates markets sought to discount earlier recoveries and potential inflation.

This is more understandable for US and UK rates due to the success of vaccine rollouts but the ECB has to deal with the EU’s bungled programme. Credit spreads remained remarkably steady.

The volatility meant that a smaller number of names came to the primary market but several did and we participated in the inaugural Whitbread dual tranche green bond. This was very well supported (the book 10 times oversubscribed), and despite pricing tight, has performed well in the secondary market with the 10-year tranche tightening by around 40bp. We also took an unusually long 10-year floating rate note issued by Nationwide off their covered bond programme to maintain our significant allocation to this explicitly rate hedged part of the fund.

The Fund has been reducing duration all year and we further reduced some longer dated issues, mainly in the utility sector, selling risk from Wales and West Utilities Finance, National Grid (since unexpectedly downgraded) Thames Water and Severn Trent. We also (somewhat reluctantly) took profits on our III 3T 40, which we bought at issue last June at Gilts + 325bp, selling them over 100bp tighter.

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