08/07/2009
Adam Cordery (Schroders): "There is no bubble in corporate bonds"
The popularity of corporate bonds has been growing steadily since the beginning of the year, provoking some investors to ask whether there is a bubble in this asset class. Adam Cordery, head of investment strategies for European credit markets at Schroders, says it is “quite the opposite of a bubble.” Valuations are not currently very high. “In fact, the spread between corporate bonds and government bonds is now higher than normal, and the spread between corporate bonds and cash has reached an all-time high,” the manager points out. According to Cordery, two factors mean that corporate bonds will continue to outperform in the next 12 to 24 months. “First, there will be a modest recovery of economic growth in 2010. Massive stimulus measures and falling interest rates will have an impact on the real economy, and in particular, on consumers who have managed to retain their jobs, and will then stop storing up their income as savings,” he explains. The second factor is “better visibility for companies which will be able to survive this recession. The trend may lead to a fall of about 50% in spreads in the next 12 to 24 months,” the manager adds. With this outlook, Cordery is concentrating all his attention on investment-grade rated bonds from solid issuers.
