The Nordic high-yield bond market remains a good opportunity for credit investors, according to DNB Carnegie.
In a new outlook, the bank said: “Looking ahead, we expect the Nordic high-yield market to continue performing well.”
“Spread levels remain attractive compared with other high-yield markets, drawing increased attention from non-Nordic investors,” Ole Kjennerud, credit strategist, said in the report.
Shipping bonds are offering trailing 12-month returns of about 8%.
Energy and oil service issuers are slightly higher at 10% and 8.5%, respectively.
“From a tactical perspective, we believe the current macroenvironment justifies being overweight Nordic high yield, given the strong carry, still-attractive spreads, and improved issuer fundamentals,” Kjennerud added.
DNB sees full-year returns of around 9%, “with high coupons cushioning softer macroeconomic conditions.”
The return is 4.7% so far this year. In 2024, Nordic high-yield bonds returned 12.4%.
The market gained at the start of the year until Donald Trump’s tariff shock in April.
Since then, the market has recovered and is open for new bond issues.
The primary market issuance has been “exceptionally strong“ this year.
The total issuance amounts to NOK 159bn ($15.6bn) year to date, which is a record.
According to DNB Carnegie, first-time issuers account for 46% of volumes, typically pricing 150 basis points wider than repeat issuers, adding to returns but raising idiosyncratic risk.
Several Greek issuers, such as Contships Logistics Corp and Performance Shipping, have joined the Oslo market this year.
DNB Carnegie expects volumes of NOK 100bn–120bn in the second half of the year, taking the issuance to NOK 260bn-280bn in 2025.
Nordic credit spreads widened markedly in early April but have since narrowed.
At 470 basis points, spreads remain around 50 basis points above their pre-April levels, “reflecting high primary market activity and a large share of first-time issuers since early 2024.”
DNB Carnegie sees the high-yield spreads to end the year at 440–480 basis points.
But Kjennerud also sees downside risks in the current market.
“Primary market activity is highly dependent on global risk sentiment. Should volatility increase again, funding markets could close down for short periods, similar to what we experienced in April,” he said.
An economic downturn would hurt high-yield bonds, which often are vulnerable to the business cycle.
“Risks remain from a potential global recession, though many issuers have improved resilience through early refinancing and lower leverage,” he said.
“At the same time, the majority of bonds are already priced above par, limiting the potential for further valuation gains unless credit quality improves meaningfully.”
“However, with average coupons of 8–9%, total returns are likely to remain strong even in an environment with limited or no valuation gains. The high coupon rate also provides a cushion against potential price declines, helping to contain downside risks in a more challenging macroeconomic environment,” Kjennerud said.