Why you should not abandon credit altogether

ON BONDS

Cazenove's Peter Harvey explains how strategic bond funds can take advantage of historically wide spreads.

The corporate bond rally is over. BBB-rated securities are now yielding less than 5%, the lowest since Merrill Lynch records began in January 1997. Some see this as the signal to withdraw from the credit field. For a long-only investor, we cannot argue with that. But some strategic bond funds can capture the credit risk premium independently of gilts. By hedging interest rate duration, with swaps and futures, some can take advantage of historically wide spreads. So what is a credit spread and why do we talk about risk premia? This is the borrowing margin companies pay to their lender,...