During the month, the Fund selectively purchased newly issued bonds, adding exposure to a broad range of sectors and added to its securitised credit exposure, including non-dollar deals across different collateral types. It also reduced exposure to richly valued securitised assets to keep allocations in line with the index, whilst also selling corporates across the banking, energy, and utilities sectors.
We maintain a constructive outlook for corporate bonds heading into the fourth quarter. Despite ongoing geopolitical tensions in the Middle East and heightened volatility in US Treasury yields and oil prices, the impact on corporate bonds has remained limited.
From a fundamental perspective, investment-grade corporate issuers remain on a very stable footing, in our view. Second-quarter earnings came in stronger than expected, with US Global Systemically Important Banks (GSIBs) reporting record results and strong performance across a broad range of sectors. Within the technology sector, we are carefully monitoring the sharp increase in capital expenditures and its impact on leverage over time. However, we also recognise the sector's healthy free cash flow generation and the significant increases in forward guidance from hyperscale companies. That said, we remain mindful of the anticipated wave of new artificial intelligence (AI)-related corporate bond issuance. In the near term, we believe that the healthy macroeconomic backdrop and the attractive overall yield on corporate bonds can enable the asset class to perform well for the remainder of the year.
