Subordinated debt is a prime concern in the banking sector

The Bank of England has cut interest rates by 100 basis points to 2%; the last time this happened wa...

The Bank of England has cut interest rates by 100 basis points to 2%; the last time this happened was October 1939. We expect the Bank of England's new-found activism to continue into 2009 when we expect to rates to reach 1%-1.5%. Cash rates will, therefore, continue to be very low. Gilt yields are already at record levels as investors remain risk-averse. Indeed, the short end of the market is now so expensive that for gilts under a 2010 maturity, the post-tax yield for higher-rate taxpayers is negative. Corporate bond spreads, on the other hand, are close to their widest historically. In...