Corporate bonds vulnerable to shocks

Fund manager's comment

Despite our belief that the fundamentals supporting the corporate bond asset class remain firm, the ...

Despite our belief that the fundamentals supporting the corporate bond asset class remain firm, the aggressive tightening of corporate bond spreads in the first two months of 2005 left us feeling that valuations had become stretched and vulnerable to shocks. Since the start of March, profit warnings and attendant ratings downgrades have combined with expectations of higher yields on US Treasuries to trigger a flight to quality. Gilts and AAA corporate bonds substantially outperformed BBB corporate bonds, high-yield and emerging market bonds for the first time since May 2004. At the same ...