Reply #16: Corporate bond investors play it safe [View All]

[54anickel]

http://news.ft.com/cms/s/ea21c368-4886-11d9-9162-00000e2511c8.html

Investors are starting to scale back their exposure to lower-rated corporate bonds to lock in the gains they have already made this year.

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But signs are emerging in the market that investors are becoming more risk averse. In the past two months, fund managers have increased their allocations to double and triple A rated credit at the expense of triple B rated names, a survey of more than 100 European portfolio managers by BNP Paribas showed.

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In this segment of the market, the telecommunications companies are the clear winners and the vehicle makers the losers.

"We see the telecoms sector as something of a 'safe haven'," said John Pearce, telecoms credit analyst at Dresdner Kleinwort Wasserstein.

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Fears that the carmakers could be assigned a negative outlook - which would take them one step further towards junk status - are unlikely to abate in the short term. A majority of funds are now underweight in the sector and many expect to reduce their holdings further, according to BNP Paribas' study.

Overall, the market has been driven tighter by improving credit quality and so-called technical factors. One such factor is the low supply of new issues, another the influence of collateral debt obligations. CDOs are securities backed by portfolios of bonds, loans or credit derivatives. CDOs often include as many as 125 credit products and, because the risk on a single name is small, they have bought bonds in names that the active fund managers have stayed away from.

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