General Market Review
Global equity markets began 2026 on a positive note. Equities posted gains in January, with market leadership—similar to late December—broadening further and no longer concentrated solely in U.S. technology stocks. The strongest performance came from Asia and emerging markets, while the major U.S. indices delivered more muted results.
As expected, the U.S. Federal Reserve decided to keep its policy rate unchanged at 3.5%–3.75%, marking a pause after three rate cuts in 2025. The Fed continued to signal a balanced view between economic risks and inflationary pressures, without providing clear guidance on the timing of the next adjustment.
Market expectations for the first rate cut have now shifted to early summer, whereas earlier hopes for a March easing have diminished.
The U.S. economy remained resilient at the start of the year, although leading indicators pointed to a more fragile labor market. The unemployment rate edged down slightly to 4.4% in December, while job gains remained subdued. Meanwhile, inflation showed signs of stabilization: December’s consumer price index rose 2.7% year‑on‑year, indicating moderate progress toward the Fed’s target.
In the Eurozone, headline inflation eased to 2.0% in December 2025 (from 2.1% in the previous month), while core inflation stood at 2.3%. This supports expectations of a more stable inflation trajectory in 2026 and aligns with the broader trend of declining price pressures.
Yields on 10‑year U.S. Treasuries increased by 6 basis points from 4.17% to 4.23%, whereas 10‑year German Bund yields remained nearly unchanged, slipping 1 bp from 2.86% to 2.85%.
The MSCI World Index rose by +2.24% in USD terms, while the MSCI Europe Index advanced +3.11% in EUR terms.
Portfolio Management Report
US and European high‑yield markets posted moderate gains of 0.5% and 0.7%, respectively. High‑yield spreads remained broadly unchanged, with US spreads at 265 bps and European spreads at 257 bps.
The U.S. high‑yield market rose 0.5% in January, supported by a solid start to earnings season, robust macroeconomic data, and favorable seasonal factors. Spreads finished the month just 1 basis point tighter, after geopolitical tensions and weakness in software‑related issuers—driven by concerns over AI‑related disruption—caused spreads to widen from mid‑January lows. Higher‑quality credits led the market, with BB, B, and CCC bonds returning 0.54%, 0.46%, and 0.32%, respectively. Excess returns totaled 0.44%. The yield‑to‑worst edged higher from 6.5% at the end of December to 6.6% at the end of January. The best‑performing sectors were midstream, oilfield services, and independent energy, which returned 1.53%, 1.53%, and 1.43%, respectively. A firmer economic backdrop and a weaker U.S. dollar supported commodity prices—gold even reached an all‑time high. Amid this commodity rally, WTI crude, the most important commodity for the high‑yield space, climbed from $57 to $65, helped in part by rising tensions involving Iran.
Fundamentals were mixed in January. Default rates remained low but rose by 9 bps on a par‑weighted basis to 1.97%, following a default by a single issuer on $2.9 billion of bonds. This marked the fourth consecutive monthly increase and the eighth rise in ten months, bringing the cumulative increase in the default rate to 77 bps. On a more positive note, the issuer‑weighted default rate declined by 11 bps to 3.03%, which is 95 bps lower than a year earlier. Credit migration remained positive, with an upgrade‑to‑downgrade ratio of 1.1x by issuer count and 1.8x by notional amount.
The Nordic high‑yield market rebounded in January after two months of weaker performance. The total return index rose 1.0% during the month, lifting the year‑on‑year gain to 8.44%. Sector performance remained dispersed. E&P fell by 0.1%, largely due to a repricing of Lime Petroleum. Other major sectors—Shipping (+0.9%) and Other Industries (+1.1%)—delivered results broadly in line with or slightly above recent trends.
Spread levels: Index spreads were relatively stable, tightening by 4 bps from year‑end to 483 bps. Secondary‑market spreads continue to align well with new‑issue pricing, and unlike in 2025, we do not expect monthly index rebalancing to push spreads higher. Index yields currently stand at 7.7%.
During the month, we increased the fund’s exposure to the Oil Exploration & Production, Oilfield Services, and Aviation subsectors within the broader transportation category, investing in both secured and unsecured bond issues.
For more information, you can find our latest Factsheet – January 2026.
Seahawk Investments GmbH
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