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Swedish air freight comes aboard

Have years of expansionary monetary policy finally come to an end after the US Federal Reserve chose to cautiously raise its policy rate in December? Niklas Edman and Babak Houshmand, fund managers of Carnegie Corporate Bond, reflect upon the last month of the year.

Put in perspective, a policy rate of 0.25 percent is still extremely expansionary, and its European counterpart, the ECB, continues to engage in monetary expansion in the form of repurchases and possible interest rate cuts. The Swedish central bank is in the hands of the ECB since an overly strong krona could weaken our competitiveness and put additional pressure on the low inflation expectations that already exist.

The market was in some kind of nervous breakdown in December, and remained weak until the interest rate announcement, which seemed to be a relief as stock markets rose and even long-term interest rates were slightly up. The Swedish 10-year government bond closed the year at 1.0 percent, which was almost unchanged over the year, while the Stockholm interbank rate closed the month and year at -0.3 percent.

The corporate bond market experienced large outflows, primarily in the US, and this also affected risk appetite slightly in the Nordic countries. Companies generally held back with new issues in this uncertain environment.
Carnegie Corporate Bond reinvested in WestAir, a Swedish air freight company that chose to refinance its bonds. We also elected to divest our final stakes in Seadrill, a Norwegian rig operator. Carnegie Corporate Bond had a negative month and fell by 0.38 percent. The return for the year was 0.98 percent.

The market is somewhat volatile and absolute yields have fallen due to lower interest rates. We have previously suggested an annualised rate of return of 3-4 percent in this interest rate environment, and there has been no major change. Our focus is on a balanced portfolio that spans all of the Nordic countries.

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