TwentyFour Income Fund Ltd on Thursday said that UK inflation figures are improving and that it expects a ‘soft landing,’ but that for now its portfolio income will increase in line with interest rates.

The Guernsey-headquartered closed-ended company, which invests for income in UK and European asset-backed securities, reassured shareholders that it is comfortable with its current exposure to residential mortgage backed securities.

TwentyFour said it has refinanced two UK mortgage transactions, the most recent of which involved a pool of legacy mortgages and which repaid about two thirds of the invested capital. TwentyFour said this ‘significantly improves the economics’.

Following this transaction TwentyFour had 11 junior RMBS investments, which at July 14 made up about 17% of its net asset value.

Chair Bronwyn Curtis said that ‘historically, UK mortgages have performed exceptionally well and although we recognise that the UK mortgage market is challenging, the board is happy with the active management of the portfolio by TwentyFour, and the very low [loan to value ratios] of these investments.’

TwentyFour acknowledged that the UK base rate rose to 5% and will ‘remain elevated in the medium term’ with the Bank of England increasing them again in August.

‘For TFIF this means that income for the portfolio will also increase in line with this increased rate due to its investment in floating rate securities,’ the company explained. ‘Whilst this is positive in terms of the return for the Company’s shareholders, we are mindful that higher UK interest rates also increase costs to homeowners with short term fixed rate mortgages, who will almost certainly have to refinance at higher rates.’

However, TwentyFour said inflation figures are beginning to moderate and that soft landings are becoming more likely for the UK and European economies.

‘We believe a soft landing of the economy is the most likely scenario, supported by improving inflation figures,’ commented Portfolio Manager Aza Teeuwen, ‘but we do think markets will remain volatile for a long period and our positioning reflects this.’

Shares in TwentyFour were up 0.4% at 99.88 pence on Thursday afternoon in London.

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