Fixed income securities

Fixed income securities reduce the risk in the overall portfolio and consist of three different asset classes with partially varying qualities.

Nominal bonds provide diversification in relation to the equity market. Government bonds generally have very high liquidity and transparent pricing. Nominal bonds of long maturity generate higher return over time than bonds with shorter maturity – the maturity premium. They are also generally less liquid and therefore give a liquidity premium.

Real bonds do not provide the same diversification in relation to the equity market because liquidity is poorer than for nominal bonds. At the same time, they give a liquidity premium and protection against unexpected increases to forecast inflation.

Credit bonds can be seen as a hybrid of nominal bonds and equities. A high credit risk gives equity-like qualities with higher credit and liquidity premiums, and hence higher expected return.

Första AP-fonden manages a global fixed income portfolio in which the bulk is invested in foreign assets. The strategic focus in fixed income management is to create the highest and most stable portfolio return possible over a long time horizon. The operating management involves tactically capitalising on the different opportunities arising in the market.