Market optimism has resumed although data is still mixed

A substantial credit rally has materialised in recent weeks. The additional yield over government bonds of sterling credit (non gilts) illustrates a substantial spike higher during the thick of the financial crisis in 2008, but also a rally from March of this year.

One key message throughout this period is that the market retains a premium over levels seen before Lehman collapsed. Given many corporates can now fund themselves relatively easily, this premium seems generous. It has been a volatile first half, with financial debt underperforming corporate debt in Q1 but recovering strongly in Q2. (Fear of nationalisation and impairment being superseded by asset liability management and buy backs). The challenge for all investors right now, though, is to gauge what shape the economic recovery is going to look like. Market optimism has resumed of lat...