Corporate credit markets are still looking positive for investors from a fundamental, technical, and a valuation basis, according to a senior executive at a global funds management house.
“From a fundamental perspective the market actually looks pretty good, and I think that’s not what you necessarily hear in the headlines, but it is the statistical reality,” Principal Global Investors executive director fixed income David Blake said.
One of the main reasons for this is that many US corporations have strengthened their balance sheets as a result of the global financial crisis from both a revenue and a cost perspective.
“From a fundamental perspective that’s a good thing to see,” Blake said.
In regard to technical factors, supply is being well controlled while retail demand is still strong for bonds.
“A trillion dollars of paper was priced in 2009 and that was US$400 billion of net issuance … we think that’s going to go down 20 per cent, so issuance will be about US$800 billion for 2010 but net issuance will only be about US$200 billion. So you’ve really got a supply story that is really well contained,” Blake said.
“Plus, retail investors have not flocked back to the equity products – they’ve flocked to bond products – and that’s really helped to supply support to the market,” he said.
Finally, valuation of credit was still attractive, according to Blake.
“We think spreads will be 40 to 50 basis points tighter through the course of 2010,” he said.
Justification for this view is that risk pricing in the market at the moment is at levels similar to those just prior to the collapse of Lehman Brothers.
“This was an extremely wide point historically in terms of valuation so risk is attractively priced still, even net of this extraordinary run that we have had,” Blake said.
