A supportive market backdrop and improving investor risk appetite in 2025 led to tightening spreads in covered bonds, providing a strong tailwind for Danish relative-value fixed-income strategies. One standout was Nordea Global Rates Opportunity Fund, which finished the year among the top ten Nordic hedge funds with a return of 25.2 percent, supported by what Nordea Asset Management’s Frank Klahsen describes as a “generally constructive market environment and improving risk appetite.”

Covered Bonds at the Core of Performance

“2025 was a strong year for Global Rates Opportunity Fund and, more broadly, for fixed-income relative-value strategies,” says Klahsen, Product Manager at Nordea Asset Management. For Nordea’s Global Rates Opportunity, performance was driven by attractive valuations in European covered bonds, complemented by selective opportunities in global government bond markets. “Covered bond spreads were compelling at the start of the year and tightened gradually as market conditions improved, contributing positively to overall returns,” he explains. The fund was able to generate incremental performance by exploiting relative-value dislocations in selected sovereign markets through active cross-market and curve positioning.

“Covered bond spreads were compelling at the start of the year and tightened gradually as market conditions improved, contributing positively to overall returns.”

Frank Klahsen, Product Manager at Nordea Asset Management.

Managed by Nordea’s Fixed Income Rates team, Global Rates Opportunity is designed to capture relative-value opportunities rather than take directional market bets, with investments focused on covered bonds and government bonds. A defining feature of the strategy is its specialization in covered bonds, an area where Nordea has built deep expertise over time. “A key differentiator is the strategy’s specialization in covered bonds, supported by long-standing market experience and a well-established investment process,” emphasizes Klahsen.

The strategy invests across a global G10 rates universe, with all foreign-exchange exposure systematically hedged. “This materially expands the opportunity set relative to more regionally focused Nordic strategies and allows the fund to identify relative-value opportunities across markets and jurisdictions,” Klahsen notes. Beyond covered and government bonds, the mandate spans the broader rates universe, including a range of interest-rate instruments used to express relative-value positions.

“Nordic covered bond markets typically exhibit relatively low credit beta, whereas euro-denominated covered bonds tend to carry higher credit sensitivity.”

Frank Klahsen, Product Manager at Nordea Asset Management.

The strategy’s global focus also translates into a different risk profile relative to Nordic-centric relative-value fixed-income peers. “For example, Nordic covered bond markets typically exhibit relatively low credit beta, whereas euro-denominated covered bonds tend to carry higher credit sensitivity,” Klahsen explains. “Managing these differences requires a robust analytical setup, combining detailed analysis of covered bond frameworks and cover-pool structures with rigorous, stand-alone credit assessment of issuers.”

Consistency Through Cycles

The investment approach is supported by a disciplined risk-management framework and a robust risk model, enabling consistent portfolio construction across market environments. “The resilience of the strategy has been evident not only in constructive markets such as 2025, but also during more challenging periods, including 2022, which was a particularly difficult year for fixed-income markets,” says Klahsen. That robustness is reflected in the fund’s track record. Since its launch in mid-2019, the fund has delivered positive returns every calendar year, translating into an annualized return of 10.7 percent. The past two years have been especially strong, with 18.8 percent in 2024 and 25.2 percent in 2025.

“The resilience of the strategy has been evident not only in constructive markets such as 2025, but also during more challenging periods, including 2022, which was a particularly difficult year for fixed-income markets.”

Frank Klahsen, Product Manager at Nordea Asset Management.

Despite the significant spread tightening in 2025, the Nordea team “continues to view covered bonds as attractively valued relative to other segments of the credit market,” according to Klahsen. Looking ahead, he expects net issuance of European covered bonds to remain very limited, potentially even turning negative, which “should provide technical support to the market.”

At the same time, markets are no longer being driven primarily by central bank quantitative easing or tightening programs. “This creates an environment in which more traditional drivers, such as supply and demand dynamics and relative valuation, once again dominate,” Klahsen adds. “In our experience, this is exactly the type of market setting in which relative value strategies tend to perform well,” Klahsen concludes. “As we move into 2026, we see a good set of opportunities across both covered bonds and global government bond markets, and we believe the fund is well positioned to continue delivering attractive risk-adjusted returns.”