Heavily oversubscribed issues

Risk sentiment continues to be affected by the geopolitical unrest, and fluctuates with the relationship between the US and China. Despite the trade war, Brexit, unrest in the Middle East and a declining economy, markets continue to price risk low and drive asset prices higher.

On top of this are central bank communications about interest rate cuts and reintroduced stimulus, measures that support high valuations and continued good risk sentiment. The Riksbank’s attempts to convince the markets that it still intends to raise interest rates has been received with strong scepticism, and market rates have continued to fall.

Although companies testified to gloomier prospects in their half-yearly reports, buyers remained in a good mood in September as the issue markets gained momentum. A lagging shortage in supply in combination with positive fund flows means that many issues are heavily oversubscribed and bond prices are being driven higher in the search for material.

The favourable climate has meant that many companies issued during the month, and we participated in names such as Humlegården and Intrum as well as in green bonds from NCC, Stockholm Exergi and European Energy. Offentliga Hus issued a subordinated bond after announcing its intention to achieve an investment grade rating within two years.

The secondary market has been driven by the strong sentiment, and we note that this year’s development has once again brought credit margins back to the levels of a year ago. Oil and oil-related sectors were strongly traded during the month in light of the attack in Saudi Arabia that caused oil prices to rise.

At the company level, ICE Group has partially redeemed and expanded its bond programme, which had a positive price impact. The portfolio was affected during the month by two smaller holdings, Dof Subsea and Nova Austral, taking September’s performance to -0.06 percent and giving fund performance of 3.52 percent for the first nine months of the year.

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