Speaking at the Investment Week Markets Forum in Edinburgh, Charles McKenzie, director of fixed inc...
Speaking at the Investment Week Markets Forum in Edinburgh, Charles McKenzie, director of fixed income at Deutsche Asset Management and manager of its S&P AA-rated Corporate bond fund, said issuance would not match ever-increasing demand.
A key reason for the increased demand for UK corporate bonds is the change in rules governing defined benefit pension schemes.
The most recent of these changes was the introduction of the new accounting standard FRS 17, determining how companies must submit information on their pension funds in their report and accounts. FRS 17 means that a pension scheme's assets are measured at market value on the balance sheet date. Future liabilities have to be discounted using an AA corporate bond rate.
'Given we expect supply of corporate bonds will remain less than demand, the outlook remains good,' McKenzie said.
'However the global economy has slowed and we can't afford to ignore the accompanying rise in defaults and downgrades and the divergence of returns between individual issuers, so you have to be very selective when constructing a bond portfolio.'
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