Property bonds: adding selectively after October’s sell-off

Those who follow us will know that we have maintained low exposure to property bonds for some time. In August, we explained why: credit spreads had returned to levels close to those of 2021 despite weaker credit metrics. Pricing changed in October.

The weakness extended across the European property market. Hybrid bonds and issuers at the lower end of the BB rating category saw the largest declines. Nordic senior bonds also traded weaker, with little differentiation between companies’ credit profiles. When an entire sector sells off, even companies with sound debt-servicing capacity offer higher risk premia. These are the companies where we have increased exposure.

In early September, Cibus issued a SEK-denominated bond at 3M Stibor plus 210 basis points. We did not participate at the time, but in October we bought both that bond and the company’s EUR-denominated bonds at spreads 75–100 basis points wider. We also bought smaller positions in NP3. We prioritise companies with higher property yields and good control of financial risks, and continue to avoid offices in major metropolitan areas.

For companies that borrow in both currencies, SEK-denominated bonds trade at significantly tighter spreads than their EUR counterparts. We have therefore mainly bought in EUR, where more investors have been looking to sell. There have been fewer sellers in SEK, probably because this year’s substantial inflows into Swedish corporate bond funds have reduced the need to raise cash. Limited trading can give the impression of more stable prices than actual sales would reveal. High new issue premiums in EUR may eventually also affect pricing in SEK.

Balder’s credit spreads in SEK and EUR

Senior bonds, interpolated three-year asset swap spreads in basis points

EUR, converted to SEKSEK

Balder has a large number of outstanding bonds in both SEK and EUR, making it a clear example. During 2025, its SEK bonds generally traded at wider spreads, as is normal for the less liquid currency. On 2 November, they traded around 19 basis points tighter, compared with around 4 basis points at the end of August.

The fund’s exposure to the sector has increased from around 4 % to just over 10 %. Our view of the sector as a whole has not changed. Conditions remain challenging for many property companies, but we now consider the compensation for risk attractive in selected bonds.

The fund returned +0.04 % in October, +2.64 % year to date and +3.19 % over the past twelve months. Falling market interest rates benefited fixed-coupon holdings, while wider credit spreads in some of the fund’s holdings weighed on performance. Our more cautious positioning earlier in the year allows us to continue adding selectively, and we retain room to act ahead of a busy primary market.

Further details on the fund’s positioning, performance and analysis are available in the October monthly report, published in Swedish. Please contact me or Andreas Olsson if you would like to receive the report or discuss the credit market.