Market  Outlook 2008 - Fixed Income - James Gledhill


Fixed interest 2008 outlook by James Gledhill, head of fixed interest at New Star

“The markets are not quite in ‘Stingray’ territory, where ‘anything can happen in the next half hour’ but conditions have been so turbulent recently that 2008 could produce everything from reasonably steady economic growth to a fullblown recession. The banking system is in disarray and interbank lending rates need to come back down towards central bank policy rates for progress to be made. Central banks recognise this but their policy assistance may have unintended consequences. If they ease rates too much, they risk stoking inflation, which is far from dead. In fact, central banks may be being a bit reckless in easing when economic growth statistics have not yet keeled over. “Fixed income investors are stuck between a rock and a hard place. Gilts may seem safer but the rising risk of inflation erodes their attractiveness. In contrast, corporate bonds offer better value but a recession could result in deteriorating credit conditions. The most prudent course of action may be to sit things out for a few months more and let events unfold, while keeping maturities short. Better value exists in corporate bonds and New Star’s fixed income funds are likely to buy credit when sensible. There appears little to be gained from being too clever, however, so the focus remains on bonds issued by companies with transparent balance sheets and limited refinancing risk”

Past performance is not necessarily a guide to future performance. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice. The value of investments and any income from them may fall as well as rise and may also increase or decrease as a result of changes in exchange rates between currencies. Investors may not get back the amount originally invested.