Is a bubble forming in A-rated debt?

Fixed income managers have expressed concerns a new bubble may be forming in higher-rated corporate bonds as investors pile into the asset class.

Faced with a deteriorating economic backdrop, managers are wary of taking on more risk by moving down the credit spectrum, but with the yields on A-rated bonds in particular quickly going the way of gilts, they now fear a bubble is forming in the sector. Investors have been flocking to single ‘A’ assets to counter the low returns on offer from government bonds, particularly in the UK where gilt yields remain near historic lows. Corporate hybrid bonds – equity-like debt issued by companies such as BG Group and General Electric – have been in demand as part of this trend, having offered...