Where next for corporate bonds?
By Tom Stevenson The last six months has been a remarkable period for credit markets. Two things have happened: first, the outlook for the economy has improved substantially, which means investors have been prepared to accept a lower income to compensate them for the risk to their capital; second, the search for income in a low interest environment has seen money diverted from deposit accounts into bonds. The combined impact of these two trends has seen bond prices rise sharply (remember they move the opposite way to income yields). In fact it has been a once in a lifetime rally for bonds, the best performance in a half year period since the Great Depression. It has been described, rightly, as equity-like returns with credit-like risks. The key question now – especially for the many savers and investors who have dipped their toes into the credit markets in frustration at the meagre returns from their savings accounts – is whether the rally has gone too far too fast. I believe the answe
