Stockholm (HedgeNordic) – The yield spread between Scandinavian mortgage and government bonds reached levels observed during the financial crises of 2008 and 2011. Copenhagen-based fixed-income specialist CABA Capital is launching a new fixed-income fund, CABA Flex, to capitalize on the current elevated and attractive spreads.
“CABA Capital is launching a new fixed-income fund with an expected return over three years of 40-50%, gross of fees,” announces the Danish fixed-income boutique. “The last year’s major changes in the bond markets have led to significant opportunities to create very attractive returns,” explains CABA Capital, founded by CIO Carsten Bach (pictured) in 2016. “The interest rate difference between mortgage and government bonds is so significant now, that it can only be compared to the levels during the financial crises of 2008 and 2011.”
“The last year’s major changes in the bond markets have led to significant opportunities to create very attractive returns.”
This presents “a unique opportunity” for investors to capture attractive returns from the asset class. “There is a window of opportunity right now – but we know from experience that this window will close again” as spread levels tighten, according to CABA Capital. CABA Flex seeks to generate returns by exploiting the interest rate difference between Scandinavian mortgage and government bonds. The fund will invest in bonds with a remaining duration of less than five and a half years.
The opportunity-grabbing fund is expected to operate for three years, with its bond portfolio expected to be sold off after three years to realize returns before the fund’s liquidation. The fund’s operating life can be extended by an additional two years until the maturity of the bonds if deemed profitable, conditional upon reaching an agreement with investors.