Corporate spreads offering value relative to sovereign bonds

BONDS

Despite the recent weakness in corporate bond markets and riskier assets in general, the longer-term outlook for these assets remains attractive.

The debt problems in peripheral Europe that have evolved rapidly in the last two months have caused spreads on corporate and high-yield bonds to widen to levels last seen at the beginning of 2010. These spread levels are still wide by longer-term standards, providing a decent cushion in case of further weakness. Conversely, government bond yields have fallen from already low levels to substantially low levels. The 10-year gilt is now trading at 3.44%, close to its lowest level since the credit crisis of just below 3% back in March 2009, a point at which many bond investors were que...