nordic covered bonds multi currency

Nordic Credit Weekly – 26th January 2018

Interest rates on the rise

ECB met last week and Draghi did not announce any changes to the previous communicated policies. He ensured that although interest rates are on the rise, they will still remain low. A year ago, this type of announcement would have pulled interest rates down. But in today’s new market scenario, he only temporarily managed to do this before interest rates bounced back up again.

Norges Bank also met and much like ECB, announced no changes. It seems like s small majority of the market expects Norges Bank to proceed with a first hike in December.

Interest rates are in general up globally. A rush of commercial businesses trying to lock in low lending interest rates can be a contribution on the rising rates we are seeing. Nordic interest rates has continued to rise, up between 5-10 basis points last week. The SEK SWAP 5Y closed on 0,66% while the NOK SWAP 5Y closed on 1,74%. Swedish and Norwegian interest rates are both up around 20 basis points so far this year. The oil price (Brent 1m) remain strong, closing on 70,5 USD/barrel.

Investment grade

The Nordic investment grade market remain strong. Credit spreads were quite flat last week, although there were small signs of spread widening intra-week. The primary activity in the investment grade has been quite low so far this year and continued so last week. A couple solid Swedish real estate names such as Rikshem and Vasakronan has issued 10 year fixed rate bonds. Issuing longer dated bonds on fixed rate is typically seen when interest rates are on the rise.

There are currently many buyers in the market and it is quite hard to get a hold of interesting deals in the secondary market. We increased our holding in Norwegian commercial real estate company Steen & Strøm during the week, otherwise little activity from our side.

High yield

High yield has started the year very strong and US high yield closed last week with the lowest credit spreads since before the financial crisis. At the same time, we also saw a risk off sentiment for US high yield, and investors favoured investment grade as well as equities. The Nordic high yield market has much like the US market had a good start of the year, boosted by a lift in oil price where especially energy and LNG shipping bonds have performed well.

After a standstill period, Swedish wind power company Aligera filed for bankruptcy last week. The company has experienced several obstacles over the past year, where both less wind than usual as well as operational challenges put the company in distress. We were a bondholder in the name and sold out the bond last Friday.

It seems like many investors started the year with larger cash positions than usual and primary activity has been very high. Several new deals and rather high volumes were placed last week and we saw Norwegian Airline and real estate company Klövern along with newcomers Siccar Point Energy and Secure Link (SL Bidco) coming to the market. Siccar Point Energy is an Exploration & Production company and issued a 100m USD bond at 9% over 5 years and cyber security company Secure Link issued 150m EUR at 3m Eurobor + 5,5%. We took part in both newcomers.

Jenny Andersson
Investment Specialist – Nordic Fixed Income

On the same subject:

The severe Corona weakness of the Norwegian krone (NOK) – What is going on?

We have seen the Norwegian krone (NOK) weaken substantially to other currencies in the Corona crisis despite being already at a historical level, including the euro (EUR) that we will discuss in this article.

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