Nordic High Yield: a potential opportunity to diversify?
14 MAR, 2025
By: Svein Aage Aanes, Head of Fixed Income and Manager of the Nordic High Yield fund at DNB Asset Management.
The high yield bond markets in the Nordic countries have evolved significantly in recent decades, establishing themselves as an attractive option for investors seeking yield and diversification. With a market size of close to €90 billion, the segment has grown steadily, especially in Sweden, which has strengthened its market after the financial crisis. According to Svein Aage Aanes, head of fixed income at DNB Asset Management, ‘the Nordic high yield market offers a unique combination of attractive yield, low correlation to other European markets and an expanding sector structure.’
Compared to the European high yield segment, Nordic bonds have historically offered a spread of between 100 and 200 basis points. Moreover, the correlation with other European credit markets is relatively low (between 0.5 and 0.6), which reinforces their role as a diversification tool in portfolios.
Investment opportunities in this market are concentrated in two key areas: yield spread and sector diversification.
Yield spread and diversification
The Nordic high yield market has traditionally been exposed to cyclical sectors such as shipping and oil services. However, the oil crisis of 2014-2016 prompted a structural diversification that has strengthened the resilience of the segment. Today, sectors such as real estate, industrials and technology are increasingly important in the high-yield bond market.
Sweden has led the growth in high yield bond issuance, shifting the traditional focus from Norway. Companies in a variety of sectors are turning to this type of financing, helping to stabilise the market and broaden its attractiveness to international investors.
Default rates and associated risks
The Nordic high yield market is currently experiencing default rates of around 4%, with a significant impact on the real estate sector. However, many of the distressed issuers have strong collateral, allowing for high recovery rates. This presents an opportunity for investors, especially given the strength of companies in the Nordic region.
Another factor to consider is the term structure of issuance. In NOK and SEK, floating rate notes (FRN) predominate, while in EUR and USD there is a mix between fixed and floating rate. In general, the Nordic high yield market is characterised by shorter maturities compared to other markets.
Investor outlook
Despite global economic uncertainty, the Nordic high yield market has proven to be resilient and continues to attract investors looking for yield and diversification opportunities. The combination of an attractive yield spread, an evolving sector structure and increased professionalisation of the market positions this segment as an interesting alternative within European investment strategies.
This market offers an attractive combination of performance, diversification and resilience. Despite economic uncertainties, this market has proven to be resilient and remains an interesting alternative for investors seeking stable returns. Nordic high yield has an increasing market depth and a growing number of issuers.
According to Svein Aage Aanes, ‘although the market presents challenges, such as default rates and lack of ratings on some issuers, it still offers unique opportunities for investors with a strategic approach and knowledge of the sector’.
