Now is the time to buy bonds because downgrades have created value in the marketplace, according to ...
Now is the time to buy bonds because downgrades have created value in the marketplace, according to New Star's head of fixed interest.
Zemek said: "Until the General Motors and Ford downgrades in early May, the bond market had been trading as a whole; if one thing went up, everything else followed suit and vice versa. The downgrading of two of the biggest borrowers in international capital markets from investment grade to junk status has created real anomalies in the market from which stock pickers can benefit.
"This is the first time in a while that there have been clear patches of good blue. We had anticipated a sell-off in gilts, but this has failed to materialise. Consequently, we have been using our cash reserves to take advantage of buying opportunities in the corporate bond market."
Areas of potential interest for New Star include the auto sector, where Zemek has invested in General Motors, which has since bounced. New Star has also picked up some good quality cable issuers and Zemek believe there is value in both insurance and bank paper.
The economic backdrop has not changed too much with reasonable growth rates and limited inflationary pressure in the system. This is generally supportive of higher yielding corporate bonds. Zemek expects the economic picture to remain similar, although with a watchful eye on energy prices.
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