General Market Review
Overall, the sentiment remained firm in June as risk assets quickly shrugged off concerns about a potential escalation in the Middle East and instead traded higher on tariff optimism and expectations on lower taxes in the US. Nevertheless, the mid-June Israel-Iran conflict and threats by Iran to block the Strait of Hormuz added short-term volatility in the oil and shipping segments. With the earnings season ahead, market participants could watch closely for signs of margin pressure and softening consumer demand as the labor market shows early signs of cooling. US equity markets closed on a high note, the S&P500 increased by 5%. European equity markets ended the month in slightly negative territory with the Stoxx 600 at -1.2%. In the first half of 2025, the US-Dollar weakened by 10% and fell to its weakest level since February 2022, as measured by the DXY Index that calculates the performance of the six major currencies against the Greenback.
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. FED-chair Powell reiterated the FED’s data-dependent approach on a forward-looking basis. Market participants anticipating two rate cuts (50 Bp) for the residual year, shifting the first rate cut expectation to October.
In the US, the labour market was weaker as non-farm payrolls increased only by +139k in May from +177k in April. The unemployment rate was unchanged at 4.2% in May. In the Eurozone, the unemployment rate was unchanged at 6.2% as well.
In the US, consumer price inflation for the month of May was in line with consensus and slightly higher than in the prior month. Headline inflation has 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 May came in lower versus the prior month. Headline inflation has increased by +1.9% and core-inflation has increased only by +2.3% respectively.
US 10-year treasury yields decreased by 17 Bp from 4.4% to 4.23%. On the other hand, German 10-year bund yields have increased by 11 Bp from 2.5% to 2.61%.
The MSCI World Index increased by +4.3% (USD den.) and the MSCI Europe Index decreased by -1.3% (EUR den.).
Portfolio Management Report
Bond markets faced less volatility versus prior months and there tended to be more buyers pushing 10-year US Treasury yields lower. Credit markets also reflected a constructive tone. In that context, particularly High Yield performed well as synthetic spreads on the 5-year CDX.HY tightened by 32 Bp and cash spreads tightened unanimously by 36 Bp in the US and 29 Bp in Global High Yield. Those levels remain low by historical standards meaning that market participants might price in a benign macroeconomic outlook. On the Nordic High Yield market credit spreads tightened by 11 Bp.
In June the total return for the US High Yield market was +1.9% followed by Global High Yield (+1.6%) and Nordic High Yield (+0.9%). The returns for the Nordic High Yield market modestly above the +0.6%/+0.7% ballpark could be considered normal at current interest rate levels, according to some Nordic banks.
On the secondary market investor’s demand for quality paper remained firm. While some trades were executed, the overall activity has been subdued. As the summer break on the Nordic markets is approaching, price reactions have been muted. The activity on the Nordic High Yield primary market remained unusually strong. A total of 29 transactions with a volume of NOK33bn (USD3.3bn equivalent) were concluded during the month. This is NOK2.5bn above the previous record set in 2024. On a year-to-date basis issuance has reached NOK149bn which is a record volume as well. Investors’ appetite has been solid again.
A volume of around USD 2bn equivalent was solely related to issues from US-Dollar- or Euro (60% of total volume for the month). Out of that, around 45% was issued from the energy, transport or utility sector. Currently the Nordic High Yield market is still the most attractive market when it comes to ordinary income as it still offers an average coupon of around 8.5%. Within our core sectors a handful relevant companies entered the market. Most interesting to us were the placements of the two hybrid bonds of DNO ASA and Bluenord ASA. The terms were similar to the standardized EUR-corporate hybrids in terms of first reset (first date where a coupon adjustment takes place), tax call, change of control (CoC) clause etc. The main difference lies in the pricing which takes place after the first reset date: The standardized EUR-corporate hybrids are generally priced at a swap rate (e.g. 5-year swap) plus credit spread. Additionally, those bonds typically have a first step up phasis (e.g. 50 Bp) and a second step up phasis (e.g. 100 Bp). This could bring total coupon to a function consisting of the swap rate plus spread plus step up, which would be quite expensive.
The USD-corporate hybrids typically do not have any step ups after the first reset date but a spread that is set above a swap rate as well. In a nutshell both instruments have in common that they are priced above a variable swap rate that could increase/decrease. In contrast the Nordic High Yield corporate hybrids do not have this swap rate feature at all.
The coupon will increase by 500Bp after the first reset date in any case, and they have no step up either.
On the US primary market more than forty deals were carried out in June. Bond yields plunged to the lowest in almost seven months. Steady and attractive total yields and large cash inflows into US High Yield funds swamped the primary market, driving supply to more than USD37bn in June, the busiest month since September 2021. The market priced USD4.6bn on the last day of June, making it the second-busiest day in June. We expect the market to be further supported with light net supply and inflows to remain constructive.
Around 9% of total volume was issued by energy, utility and transportation companies, which was below average. Within our focus, there were a handful companies entering the market. One of them was Tidewater. The company issued USD650mn in a senior unsecured bond transaction maturing in 2030. The deal was priced at par having a yield of 9.125%. The use of proceeds was marked for redeeming its senior secured term loan and the outstanding TDW 8.5 2026s respectively TDW 10.375 2028s notes. Since the aggregated outstanding amount of the notes is USD425mn plus premiums payable and accrued interest of around USD22mn and the outstanding amount on the term loan is about USD187.5mn, the company the company must pay around USD635mn. Hence, Tidewater should have gross cash after the transaction is consummated of around USD15mn. By applying fees and other expenses Tidewater might end up net zero but the transaction has extended maturity to 2030 giving the company some financial leeway. Moreover, Tidewater diversified to a broader investor base by shifting from Nordic High Yield to US High Yield market. Finally, the company has recently obtained credit ratings by all major rating agencies. The instrument was rated at BB- (S&P) and B3 (Moody’s) and the outlook is stable.
We started the month of June with a lower cash position as we have already deployed huge parts of cash in some compelling opportunities in May. Hence, we stayed on the sideline and waited for attractive new issue deals. Some of them were postponed into July. However, we participated in the new Tidewater deal that was brought to the US High Yield market. It was issued as a US High Yield benchmark deal equipped with credit ratings and a volume of USD650mn. In conjunction to the new deal, the company announced on June 25 to fully call the TDW 8.5 2026s notes – we were holding in the fund – at a price of 102.55%. The effective duration of the fund was slightly higher than in the prior month at 2.4%. At the end of June, the fund’s ordinary income potential, which includes both bond coupons and coupons from synthetic instruments, was increased to 8.1%.
For more information, you can find our latest Factsheet – June 2025.
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