General Market Review
Global markets continued to recover in May and experienced less volatility than in the previous month. Since no negative news about tariffs emerged, sentiment was further supported. At the end of the month a ruling by the US Court of International Trade invalidated the so-called “Liberation Day” tariffs. The panel ruled that the constitution gave the congress – not the president – the power to levy taxes and tariffs, and that the president exceeded his authority by invoking the International Emergency Economic Powers Act. That said, risk assets appeared to be neglecting the risk of a US recession in the short term, with momentum instead being driven by positive political developments. This might reverse at some point in time and markets then could shift their attention back from economic policy to risks to the growth outlook. The S&P500 ended the month with +6.3%. Central banks kept their cautious approach. The Federal Reserve held its policy rate unchanged at 4.25% (lower bound) to 4.5% (upper bound) and emphasized a patient approach to monetary policy amid ongoing uncertainties stemming from President Trump’s trade tariffs. The Beige Book should offer insight into firms passing passing tariff-related costs to consumers. Market participants are pricing in two rate cuts (50 Bp) this year, starting in September. In the US, the labour market was weaker as non-farm payrolls increased only by +171k in April from +228k in March. The unemployment rate was unchanged at 4.2% in April. In the Eurozone, the unemployment rate was unchanged at 6.2% as well. In the US, consumer price inflation for the month of April was below consensus and lower than in the prior month. Headline inflation has only increased by +2.3% (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 April came in unchanged versus the prior month. Headline inflation has increased by +2.2% whereas core-inflation was higher and increased by +2.7% respectively. US 10-year treasury yields increased by 24 Bp from 4.16% to 4.4%. On the other hand, German 10-year bund yields have increased only by +5 Bp from 2.45% to 2.5%. The MSCI World Index increased by +5.9% (USD den.) and the MSCI Europe Index increased by +4.7% (EUR den.).
Portfolio Management Report
Bond markets were somewhat less volatile in May than in April, but there was no clear direction as 10-year US treasury yields were traded between 4.6% (high) and to 4.2% (low). The renowned rating agency Moody’s – which was the last one standing to maintain a AAA-rating for US debt – decided to cut its rating from AAA to Aa1 on May 16 which is now in line with S&P and Fitch. This triggered a minor sell-off in US Treasuries along the curve. A week after the rating downgrade treasury yields rose further as a reaction on a weak bond auction. The US Treasury Department saw soft demand for a USD16bn transaction of 20-year bonds. This was a clear sign of the so-called bond vigilantes that were worried about the country’s mounting debt burden as Congress wrestled with a tax and spending bill that is expected to worsen the budget outlook. However, High Yield performance was quite good as spreads tightened unanimously by 63 Bp in the US and Global High Yield (-58 Bp) followed by the Nordic High Yield market (-34 Bp). In terms of total teturn, the performance gap between the various High Yield segments was much closer as the US High Yield market closed the month at +1.7% but closely followed by Global High Yield and Nordic High Yield both delivering a total return of +1.5%. The Nordic High Yield market was lagging its own benchmark as the total return since end of March was 0.2% versus the typical 0.9% in same timeframe likely due to limited secondary market activity and outdated indication levels. Activity on the Nordic High Yield primary market has picked up noticeably. As sentiment deteriorated in April, many transactions were put on hold. In May, some of them came to the market. A total of 20 transactions with a volume of NOK18bn (USD1.8bn equivalent) were concluded during the month. A volume of around USD930mn equivalent was solely related to issues from US-Dollar- or Euro. None of them was issued by a company from the energy, transport or utility sector. May is usually a busy month in the Scandinavian countries, but this year’s volume was slightly below average. Interestingly, the issuance volume was concentrated in Sweden, which accounted for more than 50% of the total volume. The Norwegian market – that generally accounts for most of the volume – was also active, but to a much lesser extent than in the prior months. There might be some issuers waiting for further issuance and clearer signs of spread normalization before heading to the market. Currently the Nordic High Yield market is the most attractive market when it comes to ordinary income as it offers an average coupon of 8.5% which is 200 Bp above the US High Yield Market and 350 Bp above the European High Yield Market. This provides a higher cushion if it comes to spread widening again. On the US primary market only more than thirty deals were carried out in May. The driver for the revival of the primary market were the attractive total yields. In total USD32bn was priced on the US primary market, which was the busiest months since September 2024. Strong demand for yields is expected to drive supply in the coming weeks. Around 7% of total volume was issued from energy, utility and transportation companies, which was below average. Within our focus, there was one interesting company entering the market at the end of May: Goodyear Tire & Rubber Co. The company issued USD500mn in a senior unsecured bond transaction maturing in 2030. The deal was priced at par having a yield of 6.625%. Goodyear is going to use the proceeds along with existing cash of around USD800mn to fully redeem its 2026s notes using its call option. The redemption will be effective in early July. Since the outstanding amount of the notes is USD900mn, the company should have net cash after transaction is consummated of around USD400mn.
We started the month of May with a lower cash position as we used some of our cash to buy into mispriced and heavily discounted securities during April. We invested a larger fund inflow, which arrived in mid-May, accordingly by building up positions in some midstream companies that cover a large part of their revenues with regulated business. By adopting a more cautious stance, we reduced exposure to riskier energy segments like oil production and oil services that are more correlated to crude oil price movements. We also bought a mispriced European automotive supplier whose 2028s USD-denominated bonds were trading at a decent spread pickup compared to its 2028s EUR-denominated bonds. The effective duration of the fund was held stable at around 2.3%. The most drastic change was the overall reduction of 6%pt in oil production and oil service companies. Moreover, we increased our exposure to the shipping segment. Finally, we sold protection on various single name CDS thereby increasing the ordinary income by 0.6% to an overall coupon of 8% on fund level. We did not participate in any new issues as there were zero deals in our focus sectors issued on the Nordic High Yield primary market and only one potential deal on the US primary market that was not compelling enough to us.
For more information, you can find our latest Factsheet – May 2025.
Seahawk Investments GmbH
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