Bond managers take profit as market rallies

F&C's Ian Robinson, manager of F&C Fixed Interest Fund and Fatima Luis, manager of F&C Strategic Bond Fund, have reduced their holdings in investment grade bonds as corporate bond markets rally in spite of high issuance levels over the past two months.

During the months of September and October high levels of issuance in both Sterling and Euro bonds surprised many investors. Sterling non-financial issuance exceeded £5bn and included companies Next, ITV and Centrica. Euro non-financial issuance rose even higher to over 29bn Euros compared to 15bn during the same two months of 2005. But Ian Robinson who predicted a rise in issuance in August said fortunately corporate bond markets had been unaffected and had posted good returns.

"Normally when issuance levels are as high as they have been over the last two months corporate bond spreads widen leading to underperformance. But this has not been the case. Strong demand for credit has easily been able to absorb these high levels of issuance, causing spreads to narrow.

"We have decided to take profit from our investment grade holdings as we think value is once again hard to find. Whilst markets may be quiet over Christmas, issuance is likely to return in the New Year which should provide better entry points into the market," he said.