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Clearing storm clouds leave room for positive reports

Improved global trade relations, an initial US-China trade deal and increased hope for an orderly Brexit sum up the October mood as global exchanges were pushed to record levels.

The market continues to defy signals of an economic slowdown and is putting a low price on risk. This is partly driven by a U-turn from central banks in the past six months, with them saying they will support the economy as much as necessary.

However, the Riksbank signalled at this month’s meeting that it still plans to hike rates in December, but that the path will then be lowered relatively sharply to remain around zero for a couple of years. This means we will continue to gain very little from interest rates in terms of helping the returns.

In retrospect, the clouds that gathered ahead of the interim corporate reports cleared somewhat as most published earnings in line with or better than analyst expectations, providing continued fuel to global risk appetite. However, the majority of high yield companies will not report until November.

The primary market was active this month, but slightly less hectic. We have invested in names like Frontmatec, Bulk Infrastructure and Logent. Frontmatec is a world leader in automation for the food industry, Bulk is a leader in sustainable infrastructure and IT capability, and Logent provides customised solutions for logistics and inventory.

Scan Global announced a review of its capital structure and will replace its two bonds with a new larger bond. The two old bonds will be redeemed at a premium of 3.4–3.8 percentage points.

SBB announced an extension of some of its bonds and redemption of old ones at a premium of 12 percentage points, another step in the company’s ambitious rating target.

Secondary market sentiment was influenced by the reports, with good risk appetite, and asset prices continued to rise. The portfolio was affected by a strong market, while the return was held back somewhat by individual holdings. Carnegie Corporate Bond rose 0.09 percent this month, bringing the gain so far this year to 3.61 percent.

Maria Andersson and Niklas Edman, managers of Carnegie Corporate Bond.

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