Rising credit spreads on corporate bonds best since ‘09

Rising investment grade corporate bond credit spreads are offering pension funds more value than at any time since the 2009 financial crisis, a fund manager says.

M&G said schemes keen to pick up greater yield than the 2% offered on ten year gilts are being urged to consider investment grade bonds in utilities and solid industrials or bonds secured on valuable assets due to their rising value and security.

With UK regulated utility companies typically offering 100bps spreads in summer 2010 now offer as much as 200bps - reaching towards their crisis levels of about 250bps - the bond manager said now is the time for investors to consider buying more corporate bonds.

M&G All Stocks Corporate Bond Fund manager Jamie Hamilton said: "When UK ten year gilts yield around 2% it is sensible for pension funds to be considering getting a bit more of their return from corporate bonds.

"The good news is that for those able to assess the risks properly there are a wide range of opportunities to more than double that yield level in high quality corporates. Even better, many of these opportunities offer significant protection in the event that things go badly wrong, such as access to good quality assets."

Data from the iBoxx sterling non-gilts all stock index shows credit spreads currently climbing to over 300bps. Data shows spreads at their peak of 450bps in 2009.

M&G said  corporate bonds secured on attractive assets, such as supermarkets or airports, also offer better risk protection and are currently undervalued by sterling bond markets,

"Now that more companies are raising funds by issuing corporate bon ds, the discriminating investor has a good opportunity to the potential to do very well indeed," Hamilton added.