Denmark’s biggest commercial fund, PFA Pension A/S, says it’s chasing yield, not safety, after Europe managed to drag Greece back from the precipice.
“After things fell into place in Greece, fixed-income markets are normalizing and are back to where they were for more than a year,” Henrik Henriksen, chief investment strategist at PFA in Copenhagen, said in a phone interview. “We’re looking high and low for alternative bond investments as returns on government bonds are very low.”
The strategy coincides with a slump in commodities and as speculation the U.S. may raise benchmark interest rates this year jolts bond markets. But after weeks and months of uncertainty about global themes, including the outcome of Greek debt talks and the state of China’s stock market, investors are latching on to more palpable indications of strength among corporate issuers.
“We’re looking for things that will provide a better return and are looking more towards covered mortgage bonds, real estate assets and corporate bonds,” Henriksen said. “Price jumps in the past couple of weeks seem to be losing momentum, so the next thing will be when the Fed rate rise comes.”
PFA is betting bond purchases by the European Central Bank will support debt prices in the region even if the U.S. Federal Reserve starts raising rates. Despite all the sound and fury of Greece’s near-death experience, Henriksen says the ECB’s quantitative-easing program ultimately means the underlying factors driving markets have remained the same since the beginning of 2014.
“It’s much the same set-up as we’ve had for the past year or 18 months,” he said. “The carry remains low and rates are low.”
Though PFA expects the crisis in Greece to be a recurring theme that investors will have to learn to live with, Henriksen says the country’s ability to disrupt European bond markets will recede.
“It turned out that the Greek death wish was only for show,” Henriksen said. “Greece lost its strongest ally when it turned out they could no longer cause mayhem in financial markets.”