Reason to be active in the secondary market
July was largely characterised by summer heat in the credit market. Risk assets generally rose on better risk sentiment, albeit at a slower pace than before. The gradual improvement in the virus situation in recent months is contributing to a stronger willingness to take risk, while sombre GDP numbers are having the opposite effect.
Despite news of setbacks, the credit markets seem to have somewhat embraced the stock market’s ability to look beyond short-term problems. The ongoing reporting season will certainly be meaningless from a traditional point of view, but investors generally seem to have been too pessimistic as companies testify to profit declines that are generally better than the ex-ante estimates.
“Risk appetite is getting better and better, and risk assets are generally rising in price as the lack of alternatives becomes even more pronounced during the summer months.”
Despite the summer lull in activity, we have reason to be active in the secondary market. Risk appetite is getting better and better, and risk assets are generally rising in price as the lack of alternatives becomes even more pronounced during the summer months. This first creates a pent-up need, meaning that once issues are announced they are heavily oversubscribed. This means lower credit margins, which in turn drives prices higher in the secondary market.
At the beginning of the month, Intrum issued a reverse profit warning and its bonds rose sharply in price. In light of this, B2 pre-announced its Q2 earnings, which were better than expected, but more information and guidance is needed from the coming report before the bonds are repriced. Catena Media repaid its bond and reported its strongest quarterly results ever, after which we started selling the position. The strong movements have led to some changes in our top-10, with Verisure climbing up on its issue. FastPartner’s interesting rating journey to investment grade led us to up our exposure.
The fund continues to recover, and rose this month by 0.83 percent, taking this year’s decline to -5.17 percent.
Last year, we saw very good risk appetite and strong fund inflows pushing credit margins down to record lows. The progress of the coronavirus is creating great uncertainty, and although we have seen some recovery, the credit margins remain at attractive levels. However, we maintain our conservative approach with a balanced and diversified portfolio focusing on liquidity. We continue to focus on sustainable companies, which we are convinced will contribute to the long-term return.