General Market Review
In a nutshell sentiment was constructive in August as both equity and credit markets performed well. In the second half of the month – ahead of the Jackson Hole Economic Symposium – the momentum has slowed a bit as equities traded sideways. Investors became increasingly concerned over the global growth outlook amid softer US macro-economic data. Hence market participants fled into gold and other inflation-resistant instruments. The gold price surged by around 4.8% in August. Apart from a more cautious investor stance, US markets posted record highs again and the S&P500 ended the month with a gain of +1.9%.
During the course of the month, the Bank of England (BoE) surprised the markets by trimming its policy rate from 4.25% to 4%, even as inflation edged up by 3.8% year-on-year, thereby prioritizing growth concerns over potential inflationary pressure. Apart from that FED chairman Powell held its last official Jackson Hole press conference, indicating that the FED is open to a rate cut as the US labour market is showing signs of weakness. This was in contrast to the Chairman’s previous statements he had made in the last several months. With these clearly dovish comments the market has moved into a transition phase from rate-hike anxiety to rate-cut optimism. As of August 29, the market was pricing in a 55% and 80% probability of a rate cut in October and December, respectively. In the US, the labour market was weaker as non-farm payrolls increased only by +73k in July from +147k in June. The unemployment rate was slightly higher at 4.2% in July. In the Eurozone, the unemployment rate was unchanged at 6.2%.
In the US, consumer price inflation for the month of July was unchanged versus the prior month. Headline inflation has increased by +2.7% (y-o-y) but core inflation (excluding energy and food) came in higher at +3.1% (y-o-y). In the Eurozone, consumer price inflation for the month of July were unchanged versus the prior month. Headline inflation has increased by +2.0% and core-inflation has increased by +2.3%.
US 10-year treasury yields decreased by 14 Bp from 4.37% to 4.23%. whereas German 10-year bund yields have increased by 2 Bp from 2.70% to 2.72%. The MSCI World Index increased by +2.61% (USD den.) and the MSCI Europe Index rose by +1.15% (EUR den.).
Portfolio Management Report
The summer break which mainly affected the Nordic countries also lowered volatility on the global bonds markets. We are now officially in a period of declining (implied) volatility for four months in a row. Particularly in terms of interest rate volatility, we are sustainably on December 2021 level – a time before central banks around the globe began to enter the hiking cycle – and similar level applying for the credit spread volatility measured through synthetic CDS-indices.
Overall, High Yield credit performed well as spreads tightened by 4 Bp in the US and 14 Bp in Nordic High Yield (-1 Bp in Global High Yield). Synthetic spreads on the 5-year CDX.HY tightened by 1 Bp. In August the total return for the US High Yield market was +1.2% (Global High Yield: +1.0%) and for Nordic High Yield +1.4%. Thus, the strong performance was driven by spread as well as carry return of the bonds.
The performance was predominantly driven by two subsegments: E&P was up 2.2% and oil services +2.8%, reflecting company-specific developments, with Shelf Drilling North Sea Holding, Floatel International and Lime Petroleum among the strongest performers. Shelf Drilling jumped ca.11% on the news that ADES International Holding is going to acquire all outstanding shares and call the US senior notes and the Nordic High Yield bond. The latter will be called at make whole which is around 2% to 2.5% above the price at first call date scheduled at 104.938%.
Some issuers that have struggled recently like cruise liner Cruise Yacht Upper Holdco also performed well. However, bonds are still trading at significant discounts to par. A small share of bonds are currently priced at distressed levels, and the share of bonds trading above par remained high at 76%, compared to 69% at end-July. The general price reactions after the broadly weaker Q2 earnings have been overall muted. We expect the volume to increase when primary market will open again in September.
On the US market, the rally was again propelled by the CCC-segment that gained around +1.49% in August. Yields plunged to a six-month low of 10.08%. Some voices came up that resilient fundamentals and robust technicals could drive credit performance to persist through year-end. The current spread of the broad US High Yield Index is wobbling around 300 Bp since early July but the distribution is skewed as more than half of the bonds are trading at less than 200 Bp. On the other hand, sentiment could reverse and lead to elevating spreads if fundamentals deteriorate for the rest of the year.
The activity on the Nordic High Yield primary market remained muted in August since Nordics were mostly in summer break. A total of twelve deals were consummated amounting to NOK9.4bn, the highest ever record for August (previous record: NOK9.2bn in 2020). The average issue sizes were smaller than usual at NOK800mn. A volume of around USD675mn equivalent was solely related to issues from US-Dollar- or Euro which was around 70% of total volume for the month. Out of that, around one third was issued from the energy, transport or utility sector. Within our core sectors only two relevant companies entered the market Ocean Yield AS and Contships Logistics Corp.) but none of the two deals was compelling enough to raise our attention.
On the US primary market thirty deals were carried out until August 19 ahead of the Jackon Hole event, where primary has ground to a halt. This deal volume is indeed a good number given that time of year. With around USD25bn, this was the busiest August since 2021 where the volume reached USD34bn. Volume for this August was twice as high as the average volume for the previous three years. We expect the volume to increase when primary market will open again in September and maintain a high level until the end of the year. In August there was no relevant company for us that came to the market as only 2% of the total deal volume was issued from the energy, transport or utility sector.
We started the month of August with a small cash position and an investment quota of 108%, and we fully invested larger inflows according to our overall risk allocation. Over the course of the month, we shifted around 8%pt from USD-denominated bonds to EUR-denominated bonds as we saw better opportunities there. We only had a give up of around 8 Bp in overall yield terms but much lower hedging costs going forward.
Moreover, we further increased our exposure in the automotive and oil service segment. On the latter, we got more optimistic on oil drilling companies as roughly 70% of the funds were allocated thereto. The residual part was used to increase the already existing exposure to a seismic company. Finally, we bought some cheaply priced corporate hybrid bonds from European issuers mainly aviation and electric generation companies to build up credit beta.
All-in-all the increase in corporate hybrids was 5%pt month over month. The effective duration of the fund was unchanged at 2.3%. We did not participate in any new issues as there were no relevant or compelling deals in our segments neither on the Nordic High Yield nor on the US primary market. At the end of August, the fund’s ordinary income potential, which includes both bond coupons and coupons from synthetic instruments was slightly lower versus prior month at 8.0%.
For more information, you can find our latest Factsheet – August 2025.
Seahawk Investments GmbH
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