Jackson Hole, an annual symposium for central banks (rather like a sci-fi convention for economists), was regarded by the market as non-news and the Fed chair’s speech did not significantly affect the market.
The bigger news at home was that Swedish banks were criticised by the European regulator (ESMA) over their “shadow rating” of issuers. This has led several banks in Sweden to abandon the practice at this point, and it could have a big impact on the market in the future.
The precise impact is difficult to quantify at the moment, other than to say that companies without official credit ratings could find financing more expensive, a side-effect the Swedish Financial Supervisory Authority does not desire, in our opinion. We will keep you updated on the subject, but our management philosophy and mandate are unaffected and are therefore unchanged.
Interest rates have been more or less stagnant in August, with no drama. The board of the Riksbank has opened up the possibility of also buying mortgage bonds since it already owns 40 percent of outstanding government debt. The credit market as a whole was very strong during the month, and this has given good returns.
August began quietly, with very few new issues, but picked up towards the end. We participated in issues from Norwegian insurance company Gjensidige and Danish mortgage institution Realkredit. Carnegie Corporate Bond rose 0.82 percent over the month, and the return so far this year is 1.69 percent.
Repurchases of bonds are still having an impact on the market, but the spillover is not significantly limited to either euro- denominated bonds or only investment grade.
Add to this continued expectations of low interest rates, and this market is one in which we have to adjust our view of returns. At the same time, there is uncertainty about global growth, the US presidential election and the long-term implications of Brexit. In other words, there is some risk of volatility ahead.