The series of crises in fi nancial markets have led to extremely attractive yields on corporate bonds. Now that governments around the world have acted to stabilise the fi nancial system, investor worries have receded somewhat, and this should help stimulate a recovery in corporate bonds. At the same time, government gilts, having been the early benefi ciaries of a fl ight to quality, now look set to weaken.The rate of infl ation in the UK is likely to peak in the fi nal quarter of the year as the shock of higher food and energy prices moves through the system. However, the recent retreat in oil and commodity prices could cause the infl ationary fears of the Bank of England to evaporate. This could pave the way for further cuts in interest rates.As the economy slows, lower interest rates ought to support companies, underpinning the prospects for corporate bonds. By contrast, we expect upward pressure to remain on real gilt yields because of the huge additional issuance which the market has to absorb.Nevertheless, the value in many corporate bonds looks extremely attractive, not just relative to government gilts but in absolute terms too. This provides what we believe is an excellent opportunity for long-term investors.
51.34p
