Corporate debt rally set to continue

During the past weeks, speculation has mounted that the rally in fixed income has come to an end. Wh...

During the past weeks, speculation has mounted that the rally in fixed income has come to an end. While this may be true of government bonds, we believe it could be premature to call the end of the rally in corporate debt spreads. Despite recent spread tightening, corporate bonds are not expensive by long-term historic standards. According to the Barclays Sterling Non-Gilt Index, the spread over government bonds at the end of June was 74 basis points; this compares to December 1996, when spreads fell as low as 44. Indeed, before the LTCM/Emerging Market crisis in 1998, spreads had traded...