Kleinwort's Zaher: Credit risk has taken a back seat

Complacency has taken hold of credit markets, with investors giving short shrift to credit risk, argues Kleinwort Benson bond head Fadi Zaher.

Developed market government bonds continue to be an attractive hedge in multi-asset portfolios against a potential shock in financial markets. Today's yields are higher than last year's, which leaves room for prices to rise in a risk-off environment. But as central banks continue to improvise with monetary policy, short-term interest rates are likely to diverge between the US, UK and eurozone. Peripheral government bond markets have been the biggest beneficiaries of European stimulus, as spreads over German bunds have compressed even further. Outstanding issues Yet although the insol...