The Nordic high-yield bond market has been very active so far this year.
The net issuance was positive in the first quarter after two years of negative net issuance.
“I think the solid start will continue into the second half of the year. When you have favourable financing conditions it will attract many issuers,” Ole Kjennerud, credit strategist at DNB Markets, told TradeWinds.
In the quarter, NOK 57bn ($5.3bn) was issued compared with NOK 42bn of bond repayments.
“Today’s spread levels and the opportunity to raise money under these conditions will lead to high volumes in the market into the second half of this year,” he added.
Last year, a total of NOK 124bn was issued compared to NOK 126bn in repayments.
The market size of the Nordic high-yield bond market was NOK 588bn at the end of the first quarter.
The oil and offshore sectors, in particular, have been notably active this year.
In April, Yinson Production issued a $500m senior secured bond issue with a five-year tenor.
“There have been a lot of new issues within oil and offshore. I don’t think the activity within those segments will be as high as in the second half of the year. It would surprise me,” Kjennerud said.
However, the shipping sector has not been that active as companies do not generally need to raise capital.
“Within shipping, there is a limited need. But some shipping companies may use this opportunity to replace secured bank financing with unsecured bond financing because it offers more flexibility in the future. That is something we hoped to see a bit more of,” he added.
If shipping companies decide to issue bonds, they would enjoy record-low credit spreads.
“The credit spreads for shipping have never been lower. It has been like that the whole year. It has been extremely favourable. But the need for raising money within shipping is equally low,” Kjennerud said.
The funds’ large reinvesting need has driven credit spreads lower as money has flowed in.
In Norway and Sweden, there has been a good stable inflow in 2023 and 2024, according to Kjennerud.
“They [funds] must find new bonds in order not to hold too much cash. It has been a challenge for the investors in the past 18 months. They have at times had a lot of cash,” he said.
“There is good activity in the primary market but the inflow of capital is higher. The result is lower credit spreads,” he added.
The returns in the high-yield bond market have attracted many investors.
The DNB Markets Nordic high-yield index was up 5.9% through to 14 June.
The shipping bonds had a return of about 3.6%.
Kjennerud advices issuers to have an active presence in the bond market.
“There is also the refinancing part. In the Nordics, bonds have a shorter tenor than international markets,” he said.
Klaveness Combination Carriers (KCC) tapped one of its bonds with an additional NOK 300m in May.
SFL Corp issued $150m of sustainability-linked bonds in a bond refinancing in April.
“Issuers in the Nordics must consider the sentiment in the market, when are markets open or closed. They must use the open markets,” Kjennerud said.
Henrik Emil Hoyerholt, portfolio manager at Alfred Berg in Oslo, sees the strong high-yield market continuing.
“There has been very good demand for high interest so far this year, credit spreads have fallen by over 150 basis points and returns have been strong,” he told TradeWinds.
“This is largely due to a lot of new subscriptions in high-interest funds, and thus a lot of capital that has entered the market,” he added.
Hoyerholt’s fund, Alfred Berg Nordic High Yield, holds bonds issued by Altera Shuttle Tankers, Havila Shipping, Hoegh LNG, KCC, Ocean Yield, SFL Corp, Torm and Wallenius Wilhelmsen.
“We believe the high-yield market will remain strong beyond the second half of the year, supported by robust portfolios with relatively good liquidity positions,” Hoyerholt said.
The low credit spreads could attract issuers in the shipping sector.
“Many are probably open to more exposure to the shipping sector, and the relatively good price KCC paid for new money may attract more issuers within the sector,” he said.
