First Half of 2025: Strong Returns in the Nordic Bond Market
The second quarter has been dominated by a series of major international events, which have also impacted the Nordic bond market.
Nordic Investment Grade
DNB Fund Nordic Investment Grade has had a decent performance over the last few years. The combination of relatively short duration (the fund has had a duration of around 0.8 years) and somewhat longer credit duration, typically in the 3.5-4 year range, has created a combination of attractive return and relatively low volatility.
The portfolio structure is for a large part achieved through investments in floating rate notes, i.e. corporate bonds with a fixed credit spread but where the base rate (Nibor, Stibor etc.) is reset every three months, keeping interest rate risk low.
When comparing return to shorter duration European indices, both corporate and covered/government the risk return characteristics of the Nordic Investment Grade Fund look quite attractive.
High activity in the Issuance Market
The Nordic Investment Grade market has been quite active in the first half of 2025. Issuance volumes have been quite high. For non-financial corporates the first half of 2025 have been close to record high, whereas new issuance for financial bonds has been closer to average over the past few years.
Liquidity in the secondary market has overall been strong. Particularly, we experience the liquidity in the Norwegian market as quite strong also in periods where volatility in credit spread increases.
Credit Spreads back to the levels at the start of 2025
Looking at credit spreads in the first half of 2025 we observe that spreads has not changed much since the start of the year. The year started strong with credit spread tightening before spreads widened in early April on the basis of the initial planned tariff regime from the US. Pullback and renewed negotiations over tariff calmed markets and during Q2 we have seen a tightening of credit spreads more or less back to the levels at the start of 2025.