Jyske Invest Danish Bonds

Market Comments, Q1 2012

For Q1, the fund generated a return of 0.02% which is 1.34 percentage points above the benchmark at -1.79%.

Review

In Q1, Greece was once again the main issue in the European bond markets. Finally, an agreement was made on on-going financing as well as a write-down of existing debt. It became the foundation of a controlled bankruptcy where all investors were forced to participate in the swap of Greek government bonds. It all took place without the expected drama.

All in all, the risk tolerance in the market has also been on the increase with for instance considerably declining yields in Italy.

Economic indicators still indicate an improvement, especially in the US, but definitely also in Germany. Despite the improved economic prospects, yields in the leading countries have been close to unchanged. This is, among other things, due to ample liquidity in the market. The European Central Bank’s (ECB) generous granting of cheap loans (LTROs) continued in Q1 and offers the European banks great opportunities of obtaining cheap loans from the ECB over the coming three years. In March, the Danmarks Nationalbank, like the ECB, offered Danish banks the opportunity of obtaining cheap loans in the coming three years. These means have to a large extent been spent on the purchase of short-term bonds which have resulted in a price increase of short-term bonds. This has had a spill-over effect on long-term bonds which also increased.

In Q1, the fund’s assets were invested primarily in Danish mortgage bonds. Mortgage bonds performed well, especially the long-term 4% callable mortgage bonds posted excellent returns. The fund has invested approx. 1/3 of its assets in long-term callable mortgage bonds which is the primary reason why the fund’s return is above the benchmark return.

Outlook

The general economic picture from recent months remains unchanged. We foresee an improvement of the economic prospects, especially in the US, but also in Germany. The funding situation for a string of European countries has improved considerably over the recent period of time, but Europe is still facing massive challenges which require a tight fiscal policy. Combined with a continued relaxed monetary policy, it means that the yield level is still expected to be basically low.

This does not, however, change the fact that a number of risks may easily enter the stage again. We see a risk that Denmark will lose some of its ”safe haven” effect. Due partly to increasingly normal conditions in the euro countries but also due to a risk of increased focus on for instance the challenges in the Danish housing market.

Moody’s, the US credit-rating agency, indicated a possible downgrade of a string of European financial institutions. Nykredit, DLR and Danmarks Skibskredit risk a lower credit rating.

The conclusion of their considerations about possible downgrades of many financial institutions will be published in May.

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 DKK 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.