Bond Chief at Norway’s Biggest Bank Braces for High-Yield Rally

  • DNB Asset Management prefers Norway, Nordic junk bond markets
  • Restructurings are now behind us in Norway’s HY market: DNB

Norway’s junk bond market will continue recovering this year as risks tied to the oil industry fade away, according to the asset management arm of Norway’s biggest bank.

“We think high yield will perform well in 2017 as well,” Svein Aage Aanes, head of fixed income at DNB Asset Management, said in an interview in Oslo on Tuesday. “In high yield, we would prefer Norwegian and Nordic high yield because money has flowed out of this market during the quite volatile last couple of years, leading to less spread tightening in this market.”

The oil-intensive junk bond market in Norway made a comeback in 2016 as crude prices started to increase and debt restructurings in the oil service companies were completed. The DNB High Yield Total Return Hedged Index has advanced 23 percent after hitting a low in March.

“Looking at the high-yield market, large parts of the restructuring and bankruptcy wave within energy in Nordic high yield came last year,” said Aanes, who oversees 330 billion kroner ($39 billion). “The biggest threat for Nordic high yield isn’t energy related anymore. It’s related to general developments in risk asset markets. I think the biggest risk for weak returns for high yield in 2017 is a situation where the stock market sells off, which is clearly not our main scenario.”

Although U.S. rates have risen since the election of Donald Trump, corporate credit is still attractive, according to Aanes.

“Short term we would prefer to be careful with duration regarding international credit,” he said. “There is a danger that particularly U.S. rates can continue to increase some. But we’re rather comfortable with Norwegian credit in general.”

For Norway, which is still struggling with the fallout of the slump in oil prices, Aanes sees low rates persisting.

“We’re not there yet that we fear rates really taking off, especially in Europe and Norway,” he said. “We perceive that central banks will keep the short end of the curve anchored for a number of years.”

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