Risk-reward ratio for bonds compelling after trying year for fixed income sector

Lehman Brothers collapse meant dire consequences in terms of liquidity and resulting flight to quality in difficult year for income-focused peer group

The 12 months to the end of February 2009 were extremely difficult for investors in US fixed interest funds. In March and April 2008, after the successful rescue of Bear Stearns, fund managers believed the Federal Reserve would do whatever it took to establish liquidity and order into the market. What fund managers did not expect was that Lehman Brothers would be allowed to go under. The consequences were bad, both in terms of liquidity and the resulting flight to quality, as investors sought the safe haven of government bonds and the US dollar currency. Investment grade credit fell...