Nordic junk bond market depends on bad news for a way in

It’s getting harder to find high yielding junk bonds in the Nordics.

"There are less opportunities now," Henrik Emil Hoyerholt, senior credit analyst at Alfred Berg Kapitalforvaltning, said in an interview last week. “It’s more those that get hit by bad news.”

After a massive rally kicked off the year, the Nordic junk bond market is stalling. An index measuring the market has eased 0.3 percent since a high last month.

The market has a heavy presence of Norwegian oil services companies, many of which have been through a restructuring over the past years. With that now largely over, it means there’s less potential for gains this year, according to Hoyerholt, who anticipates a return in line with the average coupon, or about 6.8 percent.

Alfred Berg Hoyrente fund, which holds about 50 bonds, complements more stable high yield bonds with a small number of opportunistic holdings. Norwegian Air Shuttle ASA is one of those.

"When we have entered at levels below issuance levels we have room for being a part in some changes without losing," he said. "There’s enough flexibility so the company doesn’t have to go into full restructuring. There’s enough flexibility so that the company can hold out until it’s profitable."

The fund has in the recent months taken part in new issues by Nortal AS, Green Cube Innovation and Hoermann Industries. The fund is overweight shipping and holds companies such as Hoegh LNG Holdings and Golar LNG Partners LP.

"They have good contracts, backlogs and very good visibility," he said. "It’s locked-in rates with good counterparts."

But it’s not making any major bet on the newest slice of the junk market: Swedish real estate companies. The fund is underweight real estate.

"The fact that 50 percent of the Swedish high-yield market is real estate is in itself a risk," he said. "If the sentiment starts to worsen or there’s negativity around the sector that will pull down a lot because one have to decrease in a sector that is so big."

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