Three reasons to invest in credit markets

ON FIXED INCOME

Liontrust's Simon Thorp discusses why 2011 will be another solid year for credit markets.

Credit markets look set for another year of solid returns. Strength is likely to come from three sources: good fundamentals (including strong corporate revenues and companies de-leveraging), reasonable value (such as spreads compared to the height of the market in 2007) and strong technicals (including flows into bond funds). As a result, we feel that credit markets, ceteris paribus, can generate positive returns in line with their coupons for 2011 (investment grade around 4%, high yield around 8%). But we live in a world of "fat tail risks". These include, inter alia, sovereign default ...