Investec's Barnes on the biggest risks for bond managers in 2018

Corporate bonds looking attractive

Sterling corporate bonds enjoyed a strong 2017, returning over 5.5% as credit spreads have continued to tighten.

Gilts by contrast have returned just over 1.25%, the bulk of that from the long end. The main driver of corporate returns during the year has been the steady decline in credit spreads, from 140 in early January 2017 to 120 in late December, as continued central bank buying and a benign economic backdrop painted a positive environment for risk assets. As we enter 2018, gilts yield 1.24%, and corporate bonds 2.4% which is low by historical standards. How can we interpret credit spreads? However from a relative value perspective, taking gilts at 1.24% as our base, while a historica...