Corporate bonds suffered another tough month as the fallout from the bankruptcy of Lehman Brothers reverberated around the world. Risk aversion reached historically high levels as equity markets tumbled and money markets remained, on the most part, frozen. The US's $700 billion rescue plan, which had been rejected by Congress at the first attempt, was eventually passed, but it seemed to do little to assuage fears about the extent of a global recession.In the UK and across the rest of Europe, major banks and financial institutions received multi-billion state bailouts. Iceland found itself effectively bankrupt, with the country requesting international help as it took over its collapsed banking system. The latest economic data confirmed that economies were struggling, with the UK contracting 0.5% in the third quarter, while US growth had shrunk by 0.3%.As the crisis reached fever pitch, central banks around the world, led by the Federal Reserve, the European Central Bank and the Bank of England, announced coordinated rate cuts of 50 basis points. The Fed rounded off the month with another 50bps rate cut, taking its benchmark rate down to 1%, spurring hopes that the ECB and BOE would follow suit (which they eventually did). Liquidity has fallen to unprecedented levels in the credit market given the highly challenging market conditions.During the month we sold some utilities, including Thames Water and Yorkshire Water, as they had performed relatively well and are expected to be negatively impacted going forward by the need for future refinancing. While we remain cautious, arguably there is now some value to be found, given the weakness in prices, and we will continue to monitor the situation carefully.
33.97p
