Portfolio manager comments — Q2 2024
Global rates rose in Q2. The positive performance in risk assets, strong consumer demand and growing concerns about a more prolonged inflation led the market to price out additional rate cuts from both the US central bank and the European Central Bank. In contrast, interest rates fell in Sweden when the Riksbank signaled for an additional two to three cuts during the year following its first cut in May.
The difference in interest rate paths had a negative impact on fund returns since we have positions for a higher 5-year rate in Sweden relative to Germany. We remain confident about this position as it is largely driven by expectations on key rates, which we expect will balance out over time, as well as by volatile flows from systematic actors.
The fund has had a small position for lower medium term rates in the US since year-end 2023. This position was increased at the end of April when we also opened a corresponding position in German rates. Overall, these positions weighed on returns slightly during the quarter. Our baseline scenario continues to require a recession even in the US to bring the inflation rate down to a sustainable level. We also believe that long-term rates will hold, despite cuts to key rates, due to an increased supply and higher risk premiums. The fund is therefore retaining the large positions for steeper yield curves between two and ten years in the US, Europe and Sweden. These positions had a positive impact on returns during Q2.
The fund’s positions in corporate bonds also contributed positively to returns due to a stable credit market.