Are corporate bonds too expensive?

CORPORATE BONDS

Kames Capital's Gregory Turnbull-Schwartz says with the banking sector's improving fundamentals, credit spreads on bank bonds have topped pre-crisis levels. Are investors overpaying?

In the world of credit, whether you are sponsoring new loans for a bank or analysing bonds for a ratings agency or asset manager, there is a phenomenon you might call ‘career protection bias’ (CPB). For sufferers of CPB, the perceived worst state is being too optimistic relative to one’s peers. If a credit analyst is optimistic, and is proven wrong, it can be fatal. With hindsight, that person can be shown to have exposed the company to more risk than was prudent, lost money, and/or damaged the firm’s reputation. In contrast, being too pessimistic can expose the institution to other t...