Corporate debt still looking attractive after remarkable recovery

Corporate bonds have staged a remarkable recovery since the end of the first quarter this year.

The average yield spread over gilts of the sterling corporate bond index peaked at 4.5% and has since fallen to close to 1.9%. The average spread over the last 10 years has been around 1.2%, leaving plenty of scope for further improvement. Given the weak economic backdrop and technical factors such as a record amount of new issuance, the performance of corporate debt in 2009 appears even more impressive. Banks are shrinking their balance sheets and have cut back on lending, forcing corporate borrowers to seek new sources of cash. Consequently, corporates have been actively tapping the bo...