February's performance was flat, registering a gain of just +0.01%, ahead of the benchmark which declined by -0.07%.

The stability of returns belies a volatile month for local interest rates after ANZ economists surprised the market with an updated forecast for 2 more hikes of the official cash rate. Their view is that inflation – particularly costs – are remaining stubborn in New Zealand and a rate of 6% would be necessary to tame it. However, at the end of February the Reserve Bank kept the OCR at its current 5.5%. While the RBNZ does see these risks, their view is more balanced, with an expectation of maintaining the current level for the remainder of the year.

A standout for February's performance were our holding in European Bank Tier 2 and AT1 securities, particularly from Permanent TSB and Intesa Sanpaolo. These securities still offer a discount to historical valuations relative to our other corporate bonds, reflecting the ongoing recovery in sentiment for the financial sector.

On the flip side, Charter Communications faced challenges, marked by struggles in cable subscriber numbers. These issues are driven by several factors, but particularly tough competition is from fixed wireless service providers such as Verizon and T-Mobile. Performance was further compounded by the impact of higher offshore interest rates in February. Our Charter bonds have longer-dated maturities, which was also a headwind for performance.

Synlait was also a detractor following a disappointing half year update, leading to a downturn in bond valuations. The bond matures at the end of this year and our analysis suggests that Synlait has multiple strategies at its disposal to ensure full repayment. We continue to monitor the situation closely and expect updates from the company on progress soon.