UK - Corporate bonds will outperform into the year end and overall spreads versus gilts will remain stable, Glasgow-based multi-specialist manager Britannic Asset Management predicts.
Britannic’s head of credit, Chris Bowie (pictured), says while the fundamentals for corporate bonds are good, they are not improving enough to lead to spread tightening.
“If sterling bond spreads widen substantially compared to Euro and Dollar issues from the same company, an arbitrage opportunity will be created and arbitrageurs will exploit that by buying the sterling bonds, selling the Euro or Dollar equivalents and hedging their currency exposure,” Bowie said.
“This should help to stop spreads widening significantly further from here.”
Bowie pointed to PS04/16 as a key factor for the underperformance of credit market this year with credit curves and borrowing costs steepening and rising respectively.
He believes the policy statement has already affected the corporate bond market to a large extent and the bad news has been priced in.
“Default rates have been falling and name-specific events this year have been tied to corporate activity rather than bankruptcy, fraud or default events,” he added.
“In addition, while equity momentum has slowed, earnings are still growing and companies have been increasing their investment spend.
Therefore, it is hard to argue that the fundamental corporate story has worsened enough to lead to the underperformance of credit.”
Hyperbolic discounting and political temptation: Why Brexit-fuelled AE reversal would be a 'monumental' mistake
The home secretary has suggested AE should be scrapped in the event of a no-deal Brexit. Darren Philp explains why this would be misguided
The trustees of the Kodak Pension Plan No.2 (KPP2) have said it will likely enter the Pension Protection Fund (PPF) in "due course" after reviewing the scheme's investment in Kodak Alaris.
A US company has completed a £285m pensioner bulk annuity for around 1,100 of UK members with Legal & General (L&G).
Former BHS chief Dominic Chappell has been accused of trying to rewrite history as he seeks to overturn a conviction for failing to hand over information to the regulator.