Jyske Invest Dollar Bonds

Market Comments, Q1 2012

Performance of the fund

Over the quarter, the fund generated a return of 0.83% against a benchmark return of ‑1.31%. All asset classes contributed positively to the return in the portfolio but particularly mortgage bonds yielded good returns.

Increase of US government-bond yields

The European debt crisis continued in Q1, but the thriller about the collapse of the euro in the event of a national bankruptcy in Greece was in the very last moment replaced by an agreement on debt relief for Greece. It all took place without the expected drama, but a rekindling of the crisis in this quarter again triggered flight-to-quality. In January, foreign investors bought US government bonds for USD 83bn – the highest volume since August. This contributed to keeping the yields on US government bonds at a record-low level – below 2% for 10-year yields. After the Greek debt relief, yields on US government bonds increased and at the end of the quarter, the yield on 10-year bonds was 2.2%. Whereas the yields on the other bonds in the portfolio did practically not move, which was good news for the return of the portfolio seen in relation to benchmark government bonds.

Indicators show that the US economy is recovering. The economy is enjoying a somewhat unusual upswing with investments and exports as the driving forces, whereas private spending, the traditional driving force, is rising less sharply. In order for the economic recovery to really make an impact, private spending needs to be boosted and the market is keeping a close eye on indicators of this. On the one hand, it is encouraging for private spending that home sales have increased over the past six months, which was sufficient to support housing prices. On the other hand, the high oil prices and the continued weak labour market put a damper on private spending. The Fed is therefore preparing for continued purchases of long-term government and mortgage credit bonds. The Fed has already indicated that it will not raise its interest rates this year.

Outlook

We only anticipate moderately rising yields in the coming quarter. If the US economy has seriously gained momentum, it will on the one hand point to higher yields. But on the other hand, the low Fed rate and the Fed’s continued purchases are expected to keep yields low for still some time. Finally, the European debt crisis may turn out to be a risk factor which may take yields in both directions again.

The portfolio is slightly underweight in yield risk and moderately overweight in credit bonds.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. An initial charge is usually made when you purchase and sell units. You should be aware that changes in exchange rates may have an adverse effect on your investment, if USD is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.