INVESTMENTS & PENSIONS
At the same time , investors have once again been able to find attractive cash savings rates . Why do we believe bond markets , and in particular better quality corporate issuers offer an attractive opportunity ? What is there to tempt investors out of cash ?
The final months of 2023 saw a strong rally in the
bond market off the back of rising optimism for swift and significant rate cuts . But 2024 started with central banks pushing back against market expectations . Markets have given back some of their gains . Yields for investment grade bond markets are attractive versus the levels we ’ ve seen for the past decade .
FIGURE 1 . INVESTMENT GRADE INDEX YIELD TO MATURITY .
Source Macrobond , ICE BofA indices , to 31 / 1 / 24 .
The new issue market has given us many opportunities across a range of different types of bonds . These include investment grade , corporate hybrids and subordinated financials . One area where we have been extremely selective is high yield .
WHY WE LIKE INVESTMENT GRADE
In investment grade , although credit spreads are tight , reflecting healthy fundamentals , attractive yields and relatively low net new issuance is already driving flows into the asset class . We ’ ve also seen a good amount of new issuance that we believe to be well priced , across the board .
Examples we ’ ve added to our more investment grade focused funds include :
• London Power Networks – issued a GBP 5.875 % coupon , A- rated bond that matures in 2040
• Suez – EUR 4.5 %, BBB rated , maturing 2033
• JP Morgan – EUR 4.457 %, A rated , senior bond maturing in 2031
SOME HIGH YIELD CAUTION
In high yield , there has been very limited new issuance over the past couple of years after corporates issued extensively in 2020 and 2021 . As a result , the ‘ maturity wall ’ is getting ever closer
APRIL 2024 | 19