by Dick Dickson,
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UNITED STATES, Oct 22 — Investors should buy investment- grade debt because yield premiums over government securities will narrow further this year, according to analysts at Capital Worldwide.
In their weekly address to shareholders, Capital Worldwide analysts told investors that there was still a good deal of value in investment-grade bonds, stating that global broad market spreads for investment-grade debt still have another 100 basis points of tightening to go between now and the end of the year.
Demand for corporate bonds has outstripped supply, driving down the yield premium that investors demand to hold the debt instead of government securities to the lowest in more than a year, according to data referenced in the Capital Worldwide report.
Still, Capital Worldwide concluded the report by saying that buying opportunities remain for high-yield debt, though investors should thoroughly research individual companies
I
nvestors should buy investment- grade debt because yield premiums over government securities will narrow further this year, according to analysts at Capital Worldwide.
In their weekly address to shareholders, Capital Worldwide analysts told investors that there was still a good deal of value in investment-grade bonds, stating that global broad market spreads for investment-grade debt still have another 100 basis points of tightening to go between now and the end of the year.
Demand for corporate bonds has outstripped supply, driving down the yield premium that investors demand to hold the debt instead of government securities to the lowest in more than a year, according to data referenced in the Capital Worldwide report. The spread has narrowed to an average 233 basis points from a record 511 basis points on March 30, Capital Worldwide data show. A basis point is 0.01 percentage point.
Investors have been lured by the best returns since at least 1998, with investment-grade corporate notes handing bondholders 12.5 percent. That’s up from a loss of 4.7 percent last year and a 2.6 percent profit in 2007, according to Capital Worldwide data.
On a more cautionary note, Capital Worldwide warned investors that markets should still be regarded as fragile and investor sentiment would remain fickle for some time to come. To have a favorable outcome, Capital Worldwide suggested investors focus on debt and stocks of companies with strong balance sheets and high dividend yields in order to best minimize exposure to defaults and corrections.
Still, Capital Worldwide concluded the report by saying that buying opportunities remain for high-yield debt, though investors should thoroughly research individual companies. High-yield, or junk, bonds are rated below BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service.
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