Monthly commentary Pareto ESG Global Corporate Bond
A sustainable development is a development that meets our needs today without jeopardising the opportunities of future generations to meet theirs. For this to be possible, investments in renewable energy will continue to increase dramatically. The world is undergoing the biggest re-allocation of capital we have ever seen. There are obviously big challenges and problems, but many companies will make a lot of money too. Rare earth elements (REE) are an important part of green and smart technology. China continues to dominate global production of these. Tensions between the US and China will certainly change parts of the dynamics in that market.
The bond market will be an important part of sustainable development. The forecast for "sustainable bond issuance" is closer to $1000 billion in 2024.
The market is now pricing in later interest rate cuts in both the US and Europe. Japan ended their negative interest rate policy and raised interest rates for the first time in a very long time. Switzerland, on the other hand, became the first central bank within the G10 to lower the policy rate to 1.50%. Inflation in the US has fallen significantly, but the latest data from March showed 3.2% on an annual basis, which is still above the target of 2%. Credit spreads developed well, decreasing in both the US and Europe.
This positive market climate has contributed to large volumes in the new issue market for corporate bonds globally, particularly in the US. US high yield gross volume is now $85 billion so far in 2024. Europe has seen significantly less volume, but strong names have no problem issuing.
The fund participated in several new issues and was also active in the secondary market. In terms of new issues, the fund participated in Ørsted Green Bond, Telefonica Green Bond, ProGroup, iLOQ and Virgin Media Green Bond.
In the secondary market, the entire holding in Intrum was sold.
The strategy going forward remains having a strong focus on companies that contribute with sustainable solutions here and now.
The fund is classified as an article 9 fund under the SFDR Disclosure Regulation.
The synthetic CDS credit index tightened. The iTraxx Crossover index went from +305 bp at the end of February to +297 bp at the end of March.
Portfolio management team
Philip Lindgren
Portfolio manager
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