27758.35297_Candriam Bonds Euro Short Term

MONTHLY FUND COMMENT
December 2016
Candriam Bonds Euro Short Term
Market Overview
Before markets could really close for the holiday season, there were several hurdles to clear in December. In fact, it was
one of the busiest months in terms of events with both key central banks meetings and the Italian referendum. While the
second Fed rate hike since the financial crisis was expected by the market, the overall hawkish elements from the
statement and the dots were less so pushing the US 2Yr to 1.30% mid-December. The ECB President Draghi removed
months of second-guessing by announcing a tapering of asset purchases in March 2017 (from €80Bn to 60Bn) but at the
same time announcing an extension of the program by 9 months until end December 2017. Draghi gave a dovish tint,
emphazing that there are no signs of a convincing upward trend in core inflation. In that context, the initial sell off on the
10Yr German Bund retraced rapidly and ended the year at 0.20%. In addition of these two major decisions from the central
banks, the 'no' vote to the Italian referendum pushed Renzi to resign. Despite this uncertain environment, some good
news came from the fragile Italian banking sector where it seems that a systemic solution for the NPL issue has been
found. Indeed, after the failure of the private recapitalization of Monte paschi Bank, the Italian government agreed to inject
€20bn into the banking sector to help lenders in distress. In this busy month, credit performed well particularly on the
financial sector (-8Bp on Libor Spread) and the financial subordinated debt (-17bps)
Portfolio Highlights & Strategy Review
The fund performed extremely well in December beating its referenced index by 8 Bps. Candraim Bonds Euro Short Term
ended the year with a very strong outperfomance versus its benchmark with 36 Bps of Excess Return and a total return of
0.88%.
Fund Outlook
Reflation is well under way but remains under control and the path of FED monetary tightening will be gradual in 2017.
However, interest rates normalize to adapt to the new reality and we cannot exclude some volatile periods induced by
political uncertainties (Brexit, French Elections, German Elections) . While we think that ECB will extend its QE program
by additional months, we also expect a progressive reduction of its monthly purchase as inflation will 'trend' towards the
target. In this context of potential rise in yields, the fund is well placed as it is less sensitive to interest rate increase.
This document is provided for information purposes only, it does not constitute an offer to buy or sell financial instruments, nor does it represent an investment recommendation
or confirm any kind of transaction, except where expressly agreed. Although Candriam selects carefully the data and sources within this document, errors or omissions cannot be
excluded a priori. Candriam cannot be held liable for any direct or indirect losses as a result of the use of this document. The intellectual property rights of Candriam must be
respected at all times, contents of this document may not be reproduced without prior written approval.
Warning: Past performances of a given financial instrument or index or an investment service, or simulations of past performances, or forecasts of future performances are not
reliable indicators of future performances. Gross performances may be impacted by commissions, fees and other expenses. Performances expressed in a currency other than
that of the investor's country of residence are subject to exchange rate fluctuations, with a negative or positive impact on gains. If the present document refers to a specific tax
treatment, such information depends on the individual situation of each investor and may change.
The present document does not constitute investment research as defined by Article 24, paragraph 1 of the Commission Directive 2006/73/EC. Candriam stresses that this
information has not been prepared in compliance with the legal provisions promoting independent investment research, and that it is not subject to any restriction prohibiting the
execution of transactions prior to the dissemination of investment research.
Candriam consistently recommends investors to consult via our website www.candriam.com the key information document, prospectus, and all other relevant information prior to
investing in one of our funds. These documents are available either in English or in local languages for each country where the fund’s marketing is approved.
© Candriam