General Market Review
The month of April was volatile for global risk assets. Markets tumbled following Donald Trump’s “Liberation Day” announcement on April 2, with the S&P down over 11% at its lowest point. This was its largest two-day nominal market loss in history. The turmoil was exacerbated by retaliatory measures from China, including a 34% tariff on U.S. goods, and concerns over escalating trade tensions. Asian equity markets were similarly affected dropping by 7% (China) to 12.6% (Hong Kong). However, sentiment improved sharply on April 9 when the US administration announced a 90-day pause in global tariffs with the exception of China where tariffs were raised further up to 125% subsequently. Markets interpreted this as a sign that Trump remain sensitive to financial conditions, easing fears that he might ignore market reactions entirely. The S&P500 recovered and ended the month nearly unchanged after a seven-day rally – the largest since 2020. Nonetheless, this will hardly change the underlying economic risks as tariff uncertainty will remain for a prolonged period. In response to the economic uncertainty, central banks adopted a cautious approach. Those two central banks with the greatest influence on capital markets movements followed different approaches: the Federal Reserve held its policy rate steady at 4.25% (lower bound) to 4.5% (upper bound), whereas the ECB cut its key policy rate by 25 Bp from 2.5% to 2.25%. ECB-chair Lagarde emphasized that the disinflation process was on track with inflation projections aligning with previous outlooks. In the US, the labour market was stronger as non-farm payrolls increased by +228k in March from +151k in February. The unemployment rate was slightly higher at 4.2% in March. In the Eurozone, the unemployment rate was unchanged at 6.2%. In the US, consumer price inflation for the month of March was below consensus and lower than in the prior month. Headline inflation has only increased by +2.4% (y-o-y) whereas core inflation (excluding energy and food) came in at +2.8% (y-o-y). In the Eurozone, consumer price inflation figures for the month of March came in lower versus the prior month. Headline inflation has increased by +2.2% whereas core-inflation by +2.4% respectively. US 10-year treasury yields decreased by 5 Bp from 4.21% to 4.16%. On the other hand, German 10-year bund yields have decreased by +30 Bp from 2.74% to 2.44%.
The MSCI World Index increased by +0.9% (USD den.) and the MSCI Europe Index declined by -0.8% (EUR den.).
Portfolio Management Report
The bond markets witnessed significant fluctuations in April as 10-year US treasury yields surged to 4.50% by April 11. This sell-off in Treasuries was followed by a massive rebound that brought in buyers to close at 4.16% (-34 Bp) at the end of the month. In this volatile environment, High Yield performance was ambiguous. On the one hand spreads widened unanimously by 37 Bp in the US and +45 Bp in Global High Yield followed by the weakest segment, the Nordic High Yield market with a spread-widening of 100 Bp. Having said that, in terms of Total Return, the US High Yield market was the only one closing the month at net 0% as the income return fully absorbed the negative spread performance. Both Global High Yield and Nordic High Yield delivered a negative Total Return of -0.1% respectively -1.3%. The negative performance of the Nordic High Yield market was a reversal of the strong performance of +0.7% the prior month reflecting the current global uncertainty. However, the secondary market proved to be functional and showed the strongest trading activities in years. While global drivers dominated, issuer-specific developments also contributed. In particular, the defaults of Cinis Fertilizer and Nordwest Industry Group led to a slightly wider index spread in April. Both bonds were among the many deals priced over the past eight months. Some investors might have sold their exposure of some of the most speculative deals. Currently, the market is trading at a slight discount, and the share of distressed bonds remains relatively stable at 2%. Nordic High Yield primary market was frozen in April besides only two deals. Supply came in around NOK2.7bn (USD260mn equivalent). A volume of around USD240mn equivalent was solely related to issues from US-Dollar- or Euro. One of the two deals was issued by an energy company. We are seeing some early signs that primary market might reopen in May as some issuers are already preparing new deals. However, as macroeconomic uncertainty will continue this might lead to spreads wider than pre-April levels offering investors several opportunities to lock in new issue premiums.
On the US primary market only eight deals were carried out in April. In total USD8.6bn was priced on the US primary market, which was the slowest for this month since 2008 and the slowest for any month since July 2023. Only around 9% of total volume was issued from energy and utility companies (transport: 0%). Within our focus, there was only one company entering the market but all-in-all, the elevated volatility kept borrowers on the sidelines. Data also showed that US economy contracted for the first time since 2022 due to slower spending and pre-tariffs import surge increasing the current account deficit to around USD140bn – a historical record. This tense mood on the US High Yield market was fueled by the drop in benchmark US crude oil price (WTI) that plunged by 19%, which was the biggest monthly decrease since November 2021. Thus, the US High Yield energy sector – having a weight of around 11% of the broad market – declined around 2.9% spurring the losses of the broad US High Yield market. This was the biggest monthly decline for the US High Yield energy sector since September 2022.
We started the month of April with a high cash position of around 10%. Around 4% of this was used to top up some bonds from oil production and oil service companies, so that we still had an increased residual cash position of around 6% going into the sell-off around “Liberation Day”. The effective duration of the fund was held stable but slightly changed over the month from 2.1% to 2.3%. This was technically driven as a bunch of High Yield bonds are no longer priced on its first call date but priced to maturity. After the dust had settled following the sell-off, we used parts of the cash to invest in a hybrid bond of a large Investment Grade issuer that was marked down due to the uncertainty around automotive segment. Additionally, we reduced our exposure to US oil producing companies focused on the onshore segment and invested into a Norwegian oil producer focusing on the Norwegian Continental Shelf region. Finally, we increased our exposure to the dry bulk segment. Within the coming weeks we have some maturities ahead bringing the cash position back to around 4%, which we are going to use prudently to buy into any new primary deals or opportunities on the secondary market. We did not participate in any new issue as Nordic High Yield primary market was literally closed after April 4 until the end of the month. Moreover, the US High Yield primary market was closed until April 22 and only a handful deals were issued afterwards.
For more information, you can find our latest Factsheet – April 2025.
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