Investors fear corporate bond bubble

Rebecca Jones 21 Feb 2013 | News - Comment now

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Investors fear corporate bond bubble

Two thirds of investors say corporate bonds are overvalued

More than two thirds of professional investors believe that corporate bonds are now overvalued, more than double the number of those who expressed concern a year ago, according to a survey by professional investment body CFA UK.

The CFA's quarterly survey showed that 68 per cent of respondents rated corporate bonds as either overvalued or very overvalued, compared to just 34 per cent in the first quarter of 2012.

In addition, more than 80 per cent of respondents said government bonds are currently overvalued or very overvalued, up from 72 per cent in the same period last year.
Will Goodhart, chief executive of CFA UK, described the sharp rise in concern over corporate bonds as 'dramatic'.

He added: 'When we launched the Valuations Index a year ago, the overwhelming majority of investment professionals viewed both government and corporate bonds as overvalued. They are even more certain that is the case today.'

Investors were far more positive on equities, particularly those in emerging markets with just under half of respondents rating the asset class as undervalued or very undervalued, up from 43 per cent in 2012.

However, the amount of professionals who view developed markets as undervalued has declined since the beginning of last year, dropping from 47 per cent to just 40 per cent this year.   

The survey also showed that gold continues to be seen by many as overvalued, though the amount of those who held this view dropped to 47 per cent this year compared to 61 per cent at the beginning of 2012.

The news follows JP Morgan's warning on Wednesday that the heavy overweight of bond holdings in the market could possibility lead to a tech bubble-like crash and that investors should head back into equities to rebalance.

Related topics: Bonds, Gilts, Global equities, Gold, UK equities

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