Portfolio Manager comment Coeli Likviditetsstrategi January 2019

Likviditetsstrategi advanced with 0.13 percent during January. The corporate bond market began the year strongly with falling credit spreads in general when investors’ risk appetite strengthened. The activity in the primary market has been relatively limited so far, which provides further support for the prices in the secondary market.

The largest contributor of the month was the Norwegian shipping company Fjord1, which mainly operates road ferries across the Norwegian fjords. The company’s bonds were revalued in line with the Nordic credit market, despite not presenting any specific company news. Samhällsbyggnadsbolaget provided another positive contribution after the company carried out a voluntary repurchase of certain bonds with short maturities and carried out a new issue at attractive terms.

Stolt-Nielsen also made a positive contribution to the month’s results after the company presented its annual report. The fourth quarter was challenging with falling operating profit; however, the company reported reduced indebtedness and guides for market conditions to improve in 2019.

A couple of portfolio changes were made during the month. Among the fund’s holdings of real estate companies, bonds from CIBUS were sold in favor of increased exposure to Kungsleden. One third of the holdings of bonds from Icelandair were redeemed early on in accordance with the agreement reached by the company with the bondholders in December. In addition, the holding of hybrid bonds from Samhällsbyggnadsbolaget and bonds from Enea were divested, as the valuation of these bonds no longer appears attractive.

The month of December was difficult to navigate; however, we can summarize a positive January, both for the stock markets and the credit markets. In the US, S&P 500 rose 7.9 percent, which is the largest percentage increase in January since 1987. The Federal Reserve decided to leave the interest rate unchanged whilst presenting caveat wording in its statement regarding patience for future monetary policy decisions. The report was somewhat surprising for the market as the central bank’s tone has changed since the December hike decision. Although, the Fed seems somewhat concerned about the economy going forward; employment statistics were presented, which showed that the number of new jobs in the US economy in January increased by 304,000. This was nearly double the estimates. Thus, the US economy seems steady, despite some external problems.

The Brexit-discussions have continued in the UK. Parliament voted no for both the negotiated agreement and for an exit without an agreement. The British government, led by Theresa May, is now forced to seek concessions from the EU to modify the most, by British standards, controversial parts of the agreement. The request for renegotiation has so far not received any positive response from the EU. Thus, it looks like the UK is approaching the official date for the exit, less than two months’ away, without a withdrawal agreement. However, there is still time and the negotiations will most likely continue.

In Sweden, 131 days after the parliamentary election, a new government finally took office. Although, the extended process for government formation has not had any significant impact on the financial markets. The short Swedish market rates continued to rise in January and STIBOR 3 month is now quoted at levels around -0.10 percent. This is a marked increase from around minus a half percent that was in effect at the beginning of November last year.

In the credit markets, the bleak tone from previous months has been broken, with reduced credit spreads and rising bond prices for both investment grade and high yield bonds. Despite a significant shift in sentiment, the market is still somewhat hesitant with relatively few new issues and low volumes in the primary market.