Monthly Commentary - Pareto ESG Global Corporate Bond
The market sharply increased in volatility and lost its footing. Basically, all risk assets fell, especially after the Federal Reserve interest rate decision on September 21. The hawkish tone also continued in other parts, such as the UK. The new government in London surprised with major tax cuts and support for household energy costs. The huge turmoil in the UK bond market was only calmed down when the central bank started buying large amounts to balance the turmoil. Inflation remains at a high level and the major central banks in the US and Europe are probably hawkish for the rest of the year. We see some signs of a slowdown in the global economy, and this may affect the labour market in the US and Europe and reduce inflationary pressure further down the line.
Credit spreads ended the month higher, and interest rates rose after inflation figures in the US and Europe remained high.
In the credit market, new issue volumes were low in September in high yield, but investment grade continued to attract capital in both the US and Europe. The forecasted net issuance in US high yield is around -$130bn for 2022 and around zero in European high yield. Many companies that issue high yield do not have large liquidity needs in the near future, which is very positive given the turbulence in the market. The companies that enter the market must pay considerably more in total coupon than just nine months ago.
It is a painful but probably healthy transition from an environment with negative or zero interest rates and low credit spreads. Healthier business models will be rewarded and stronger companies with greater flexibility will cope better in this challenging time. Those are the type of companies we focus on for the fund.
The fund sold some in Intrum, Solenis, Energizer, Swiss Life, Momox and Spie.
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 widened during August. The iTraxx Crossover index went from +588 bp at the end of July to +642 bp at the end of September.
Portfolio management team:
Philip Lindgren
Portfolio manager
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