Caution is needed when going down the credit curve

Demand rather than fundamentals has been driving down yields and encouraging investors to buy into lower quality paper. They should beware because this technical support for the market is not going to last forever

Concerns about a possible war with Iraq and sluggish economic growth have weighed down global equity markets so far this year. However, corporate bonds have been on a downward, but volatile, trend since last November. This contradictory message ' corporate bond investors are demanding lower returns, compared to equity investors who are demanding higher returns to compensate for the increased uncertainty ' is due to strong technical factors, rather than any fundamental improvement in the quality of companies' business prospects. Essentially, institutional investors have been minimising ...