Stron but volatile market
The credit markets usually lag behind the more agile equity market. The stock market made a strong recovery in late February, but was relatively unchanged in March. In contrast, the credit market was very strong and many bonds with a high market correlation, or beta as it is sometimes called, saw substantial price gains.
Among the best performers were subordinated bank and corporate bonds in companies like SEB and Volvo.
The fixed income market was also largely unchanged with respect to interest rates on government bonds.
However, we note that mortgage bonds have also seen price increases as their spreads (risk premiums) against government bonds have narrowed.
Fed chief Janet Yellen made a statement at the end of March that the market interpreted to be relatively dovish. She urged the US central bank to be cautious with any rate increases as she is concerned about the strengthening dollar, the turbulent market and the impact of the strong dollar on the Chinese yuan. The market moved in a positive direction on the statement, and at the same time the European Central Bank exercised strong monetary stimulus during the month.
The market for new issues was somewhat more active and we invested in, among other things, Finnish real estate company Sato and Finnish property developer SRV. Carnegie Corporate Bond had a strong month and was up 1.08 percent, resulting in -0.96 percent for the year.
The market is more volatile than we have seen in many years and absolute returns have declined because of lower interest rates, but are now higher because of the adjusted risk premium. We are changing our communicated return to an annual rate of just over 4 percent. Our focus is on a balanced portfolio that spans all of the Nordic countries.