Portfolio Manager comment Coeli Likviditetsstrategi June 2020

Likviditetsstrategi advanced during June with 1.45 percent. Since year-end, the NAV per share has consequently decreased by 1.33 percent. The recovery in the financial markets slowed down during June and volatility increased towards the end of the month. Investor sentiment was burdened by growing concern about renewed spread of the corona virus in the countries that have eased the restrictions, not least as a result of alarming reports from several states in the southern US. In addition, the US sharpened its tone against both China the EU by threatening with new tariffs, which increases the risk of trade conflicts.

However, developments in the corporate bond market were positive with tighter credit spreads in both the investment grade and high yield segments. In the Nordic primary market activity increased after a couple of months with very low issuance.

Samhällsbyggnadsbolaget i Norden was one of the month’s major contributors; during the month S&P confirmed the company’s investment grade rating, BBB- with stable outlook, and removed the company from “Credit Watch Negative”. Samhällsbyggnadsbolaget also reported that it sold properties for just over SEK 6 billion and increased available credit commitments. Thus, the company is expected to be able to reduce its loan-to-value ratio and show a satisfactory liquidity.

As well, ship leasing companies SFL Corp and Ocean Yield were found on the list of contributors. SFL announced that one of the company’s customers choose to repurchase two oil tankers prematurely, which strengthens the company’s cash position and enables new investments. Ocean Yield reported that seven tankers are being placed in a joint venture. This will strengthen the company’s equity ratio, which is necessary to increase the distance to the company’s loan covenants.

Bonds from property developer Magnolia Bostad also performed strongly after reporting three project sales covering approximately 1,000 apartments. Thus, Magnolia followed up a strong first quarter with continued good sales and strong demand for newly developed residential properties.

On the negative side was the reinsurance company Sirius International whose bonds were marked slightly lower without any news being presented by the company.

During the month new investments were made in bonds from Nordic Entertainment Group and Tele2. In addition, exposure to insurance companies was increased through an investment in a subordinated bond from If P&C. In order to reduce exposure to cyclical companies, the entire holding of bonds from ÅF Pöyry was divested.

During the month of June, the US Federal Reserve (Fed) announced its intention to start buying individual corporate bonds. Previously, the Fed has only purchased ETFs in its USD 750 billion QE program. Corporate bonds that may be included in the purchases must have a remaining maturity of no more than five years and an investment grade rating as of March 22, when the program was announced. The S&P 500 increased by 18 percent during the second quarter of the year, which is the largest increase since 1998.

Economic stimulus also continues to come from the European side of the pond with announcement from the ECB of intention to expand its QE program by EUR 600 billion (a total of EUR 1,350 billion) and extend the implementation period to June 2021. In addition, Germany announced that they are speeding up the implementation of its EUR 130 billion support package.

Two interesting observations for the Swedish bond market happened during the month. First the government decided on a green framework for government bonds. The National Debt Office (Riksgälden) is now preparing for an issue by the end of the summer and expects a volume of SEK 20 billion. Then the Swedish Financial Supervisory Authority (FI) published its semi-annual report on financial stability. FI addresses the corporate bond market and the importance to increase transparency in the market, to avoid further structural issues. Discussions are now also being conducted to facilitate the funds’ liquidity management, which was a problem during the March crisis.

During the month, the European and Nordic credit markets showed falling credit spreads in both the high-yield segment and a flat to moderately tightening development in the investment grade segment. Stibor 3-month was noted at 0.06 percent, which is 12 basis points lower than end of May. The Swedish 10-year government bond was quoted at -0.07 percent at the end of the month.