Shorter-dated credit outperforming

Fund manager's comment

Consensus is split in the UK market on the course of base rates. One camp expects them to rise to 4....

Consensus is split in the UK market on the course of base rates. One camp expects them to rise to 4.75% by the end of the year, with rates rising by 0.25% a quarter. The other believes that with inflation remaining well below target, and the trade weighted value of sterling now 5% above the level predicted in the last inflation report, the need to raise rates further is not necessary. Using our own internal growth and inflation forecasts, including a base rate target of 4.25% by the end of 2004, we calculate the fair value for 10-year gilts to be 5%-5.25%. We find it difficult to be b...