Absence of new issues
February was largely as weak as January, but recovered slightly towards the end, especially in the equity market. This was also apparent in government bond markets, which fell at the beginning of the month before the trend was broken mid-February.
Government bonds are known as a haven for risk-averse investors in times of stress, as seen in recent months. It is too early to say whether this trend has broken, but government bonds are approaching the levels of their lows in April 2015. The risk premium has diverged widely, and this has been the single largest contributor to negative returns.
However, this has meant the running yield has increased significantly. This is despite the fact that the Stockholm interbank rate has fallen to a historically low -0.51 percent. STIBOR fell in the wake of the Riksbank’s rate cut by a divided board. The relationship between interest rates and credits has not been this high since the euro crisis was at its worst in 2011. Quite simply, in relative terms, investors are being much better paid for investing in corporate bonds now than they have been for a very long time.
The new issue market remains virtually closed for many companies. This will not persist, but the current price levels make it expensive for companies to be proactive in the debt markets. The only ones considering new issues are those that really have to. A few small companies chose to raise new capital in February, but none we were attracted to participate in. The Carnegie Corporate Bond fund had a negative month, and fell by 1.3 percent for the year.
The market is more volatile than we have seen for many years, and absolute returns have declined because of lower interest rates, but now higher because of the greatly-adjusted risk premium. We are revising our communicated annual return to just over 4–4.5 percent. Our focus is on a balanced portfolio that spans all of the Nordic countries.