Corporate bonds are “overvalued”, say investment professionals

Bonds_newspaperInvestment professionals increasingly see bonds as overvalued, with a five-year high reached for views on corporate bonds.

The perception that corporate bonds were overvalued has climbed for four consecutive quarters, reaching its highest level – over 80% of survey respondents – in five years since the CFA Society of the UK (CFA UK), a professional body, started gathering opinions.

Similarly, government bonds continued to be widely viewed as overvalued, with 78% holding this view.

Will Goodhart, chief executive of CFA UK: “Despite some volatility over the past quarter, bond yields are pretty much as they were when we polled members at the end of last year. It appears that respondents find that somewhat surprising given the sense that growth and inflation are accelerating and that central banks are signalling strongly or weakly that interest rate-setting is entering a period of normalisation – for which read that rates will rise.”

More CFA UK members also viewed gold as being fairly valued. About a quarter, a fall from 32% at the end of 2016, saw gold as overvalued.

Meanwhile, emerging market equities, which “have had good support over the past quarter”, could have further to run.

The general perception of equities being overvalued fell slightly over the quarter, though developed market stocks were still viewed by the majority of respondents as overvalued (68%), whereas around half of respondents considered emerging market equities to be undervalued (48%).

CFA UK’s findings are based on 219 members that gave opinions in February and early March.

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