The case against bonds

Since the beginning of the credit crunch, credit spreads have expanded considerably, prompting many analysts to extol the virtues of bond investing. However, in such tumultuous times, corporate bonds bring exposure to certain risks. What are they?

A public-opinion poll is no substitute for thought. - Warren Buffett   In the investor's habitual search for value, there can be few more appetising prospects than a 'low-risk' asset trading at Depression-era valuations. Such is the apparent case with investment-grade corporate bonds. Since the onset of the credit crunch, credit spreads (the additional yield over government bonds that investors receive for accepting company credit risk) have widened from 0.7% to 5.1%, the extent of this move can be seen in an historical context in Chart 1. This has prompted analysts and pundits ...