Monthly commentary Pareto ESG Global Corporate Bond
Federal Reserve left its policy rate unchanged at 4.25-4.5% at its policy meeting at the end of the month, reiterating the risks to inflation and employment are roughly in balance. The onwards policy rate trajectory will continue to be dependent on incoming data and market outlook. Market expectations for 2025 currently stand at two rate cuts.
Meanwhile, ECB cut its policy rate by 25 basis points to 2.75% the day after Fed held its meeting, highlighting the weakness in the European economy and the need for the European central bank to move ahead in its rate cutting cycle. The market expects ECB to cut three times for remainder of 2025.
New issuance started off strongly in January, especially in US, which saw record issuance for corporate bonds the first week of the month of about $83 billion of issuance volume, the highest figure since 1990. The European issuance market was also strong. The strong issuance market is driven by overall good conditions underpinned by historically tight spreads, good inflow and high coupons for fixed income funds, and an encouraging outlook on the credit cycle.
In the primary market the fund participated in two new deals, Elior Group and OVH Global. Elior Group is an international operator in the contract catering and services sector. The company issued a €500 million bond which landed at a yield of 5.625%. OVH Global is a leading independent European provider of cloud infrastructure with a global presence. The company issued a €500 million bond with a yield of 4.875%.
Performance in 2025 started off on a positive note and we are looking forward to a good year for the fund, underpinned by an attractively high average coupon. In the near-term we will pay close attention to the upcoming reporting season, which is already underway.
Portfolio management team
Philip Lindgren
Portfolio manager
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