Corporate bonds possess attractive qualities right now
The chief strategist points to the following characteristics of investment grade bonds that he currently finds attractive:
1. The corona crisis has generally resulted in higher excess yields – also known as credit spreads – on so-called credit bonds relative to more secure government bonds. As well as investment grade bonds, this also applies to emerging market bonds and high-yield bonds, which are corporate bonds of low credit quality. However, these other types of credit bonds are riskier and more vulnerable to an economic downturn and further market turmoil than investment grade bonds, which right now stand out as the best means of capitalising on increased credit spreads without running too high a risk.
2. In March, the central banks launched a programme of historic proportions to buy up bonds and thus support credit markets, so that companies and governments could continue to raise funding under reasonable terms. As part of the programme, central banks also plan to buy up investment grade bonds, and we expect this will help put a safety net below bonds in the time ahead, should the corona crisis flare up again in the financial markets.
Reasonable 12-month return on equities
More generally speaking, Henrik Drusebjerg continues to expect a recovery in economic activity in the second half of this year, even though the process will of course be gradual.
“The massive economic assistance packages, low interest rates and subdued oil prices provide a solid foundation for economic growth, and at Danske Bank we expect a reasonable single-digit return on equities over the coming 12 months. However, as mentioned, equity markets could face more of an uphill struggle going forward than over the past month. Equity prices will presumably require solid progress in terms of the coronavirus and the economy before we see further significant increases, and there is no little risk of setbacks along the way,” concludes the chief strategist.
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