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Warning for continued turbulence in bombed-out asset class

The turbulence in the market for corporate bonds can both continue and worsen. There is also a risk that the decline will not be fully reflected when Swedish funds set their NAV rates, warns an assessor. In the short term, however, several experts see buying positions in the bombed-out asset class.Published: 29 June 2022, 21:21“I do not recommend anyone to pour their money into corporate bonds right now,” Paul Brain told British asset manager Newton in a conversation with Di TV. The nominee sees clear risks that interest rate hikes from central banks and softer economic growth will continue to shake up credit. “A wild journey can still await us. I do not think that a slowdown or a recession is completely priced in. ”However, he points out Paul Brain that the credit spreads, ie the differences in interest rates between safe government securities and corporate bonds that indicate pricing and risk picture, have now been taken into account for a lot of bad news. “I still think we are starting to approach a peak,” continues the manager, who thus says he sees a buying situation in three or four months. Claes Måhlén, chief strategist at Handelsbanken, points out in Di TV’s program Börsmorgon that the turmoil in the credit market goes hand in hand with the turbulence on the stock market. “It is very correlated with the stock market. It is a reflection of the financial environment we see now, with rising interest rates and a weaker economy. ” At the same time, the market for corporate bonds is less liquid than the stock market and tends to dry up in times of anxiety. “Suddenly no one wants to join,” says Erik Nordenskjöld, investment manager at investment adviser Citroneer, who points out that the spread is so far more dramatic out in curves showing the European or American market. “You do not see it as clearly in Sweden, where we have poorer liquidity, everyone pulls away instead”, Erik Nordenskjöld continues. This in turn can create the illusion that prices do not change that much and that trade is calmer, although in fact the anxiety may be greater in a market where sellers and buyers cannot meet. “Volatility appears to be lower, although it really is not, as we have no trades. There is nothing to say that the Swedish market would be less volatile than the European one, it is rather the opposite. ” During the pandemic crisis in At the beginning of 2020, the Swedish credit market collapsed, which was followed by closed-end funds and rescue auctions from the Riksbank. ”That is the risk here. But maybe it works better this time. The banks and funds have learned to structure their portfolios in a wiser way, ”says Erik Nordenskjöld, who adds that a stagnant market also makes it more difficult for the funds to value corporate bonds. “But will prices be fully reflected? We do not know. Is it fully visible in the NAV courses at the funds? We do not know, ”says Erik Nordenskjöld. Asset manager David Bagge points out that a growing group of foreign investors can also be a source of concern. “The Nordic market for higher-risk corporate loans has, at least on paper, been okay compared to Europe and the US,” he says, adding that a change of mood could have major repercussions. the larger players, would decide to sell Nordic high-risk bonds during the summer when liquidity is low in the Swedish market. ” Despite that risk David Bagge points out the image that market pricing looks tempting. However, he adds that he is happy to wait until after the reporting period in July. . Paul Brain does not expect the worst-case scenario to become a reality. “March 2020 was an exceptional event with a lot of uncertainty. This time we have a locking mechanism. If the economy develops very poorly, the central banks will not be able to raise interest rates as much. A re-pricing of key interest rates should provide security. ”His employer Newton, which is part of the American banking group BNY Mellon, is now positive about investments in government loan interest rates and, in the short term, also about corporate loans. “We can not escape the fact that we see the worst market for interest rates in decades. The last few months have been painful, but we think we are approaching a turning point. ” Gabriel Mellqvist


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