The past week has been a tumultuous one. The crisis in Italy may have its basis in politics, but its effects were felt in the corporate market across Europe.
Italian two-year yields jumped a whopping 186 basis points in a single day. Italian and Spanish banks took the biggest hit while core European banks were also sent wider.
Amidst this turmoil, Nordic bonds, both rated and unrated, have performed extremely well.
New issuances were still being made in the Nordic market, at a time when things had come almost to a standstill in Southern Europe. That is a testament to the fact that the buyers of Nordic bonds have a lot of confidence in the market.
A uniquely stable environment
The Nordic corporate bond market is unique in many different ways. Nordic bond issuers operate in a home market known for its high predictability and transparency, long-lasting political stability and low corruption-rate.
And while in many walks of life, stability may be synonymous with boring, when it comes to investments, it is critical to withstanding sudden shifts in the markets. That’s something the Nordic market displayed this week, with business continuing as usual. Yes, there were some bonds where the prices dropped with the market, but it was mostly limited to the banking and finance sectors that have a tendency to react this way.
The past week was a real-life acid test, demonstrating how the Nordic bond market behaves under distressed market conditions, and the results are very promising.
All eyes on the North
For these – and many other – reasons, we are seeing rising interest towards Nordic corporate bonds, especially from investors in continental Europe, many of whom are searching for variety and diversification in their portfolios.
I believe that the turbulence in the European market is not over. In a highly unpredictable world, it makes sense to find calmer waters, and that is where the Nordics hold the key.
Text: Jani Kurppa, MSc (Econ), Senior Portfolio Manager Evli Nordic Corporate Bond fund. Jani has almost 20 years experience in the fixed income markets, specializing in corporate bond portfolio management. Jani joined Evli in 2008.