Although the outlook for the Eurozone is looking far from rosy, Adam Cordery, head of European and UK credit strategies at Schroders, believer credit returns are still not over.
According to Schroders this modest growth backdrop will be more than enough to help maintain the attractiveness of corporate bonds, as companies simply need sufficient cash to service their coupons and principal.
“We believe the case for corporate bonds in 2010 is further supported by their valuation relative to cash and government bonds,” said Cordery.
Although the spread of corporates over government bonds is not as wide as it was in March last year, it is still twice as high as it was in 2007 – the peak of the credit cycle – and the spread over cash remains even higher.
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