Caution spreads into corporate paper

Fund manager's comment

For the first time in a year, UK corporate bonds underperformed gilts in January and February 2004. ...

For the first time in a year, UK corporate bonds underperformed gilts in January and February 2004. A strong pound, some insecurity over the strength of the US economic recovery and the prospects of UK interest rate rises all weighed on the outlook for corporate profits and credit markets. During early February, the Bank of England's Monetary Policy Committee raised UK interest rates from 3.75% to 4%. This move was of little surprise to the markets, which had already factored it into bond prices, with further increases already expected. UK corporate bond yields increased marginally in...